Australian Securities and Investments Commission v Albarran

4 Section 219(2)(b) of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") provides that a person appearing as a witness at a hearing must not refuse or fail to answer a question that he or she is required to answer by the Panel Chairperson. This subsection does not apply to the extent that the person has a reasonable excuse: s 219(2A) of the ASIC Act. 5 The Panel Chairman certified in writing under s 219(6) of the ASIC Act that Mr Albarran had, when required by the Chairman to answer 37 questions specified in the certificate, refused or failed to comply with that requirement, without reasonable excuse. 6 The plaintiff, the Australian Securities and Investments Commission, seeks orders under s 219(7)(b) of the ASIC Act punishing Mr Albarran for his refusal or failure to answer the questions, in the same manner as if he had been guilty of contempt of court. 7 The question which now arises is whether I am satisfied that Mr Albarran had a reasonable excuse for his refusal or failure to answer the questions: s 219(7) of the ASIC Act. Mr Albarran's excuse 8 The reason put forward by Mr Albarran for declining to answer the questions is that he relied on legal advice. That was not the reason he gave to the Panel Chairman on 7 February 2007. On that occasion he told the Chairman that he believed that answering the questions may prejudice his interests in a separate matter that he had brought in the Administrative Appeals Tribunal ("the AAT"). 9 That matter arose out of disciplinary proceedings that were determined adversely to Mr Albarran by the Board in December 2005. Mr Albarran sought a review of that determination by the AAT. Mr Albarran's proceeding in the AAT had not been heard at the time when he was summoned to give evidence in the Partner's matter before the Board. 10 Mr Albarran and the Partner were both members of a firm of Chartered Accountants, Hall Chadwick. I will set out the background facts in more detail below. It is sufficient to say by way of introduction that the issues before the Board in both matters were substantially identical, each of them arising out of the voluntary administration of a company, Formula Engineering Pty Ltd, which was a client of Hall Chadwick. 11 In Mr Albarran's disciplinary proceeding the Board found that he had been party to a contrived arrangement to appoint a person as voluntary administrator of Formula Engineering in circumstances in which Hall Chadwick and its members were precluded from taking that appointment. 12 The Board organised the disciplinary proceedings in respect of Mr Albarran and the Partner such that the two sets of proceedings were kept separate, and the Panels were constituted by different members. The legislation 13 The Board is constituted under Division 1 of Part 11 of the ASIC Act. Its functions and powers include those conferred on it by s 1292 of the Corporations Act 2001 (Cth): see s 204 of the ASIC Act. 14 Section 210A(1) of the ASIC Act provides that the Board's functions and powers in relation to an application to the Board by ASIC for a person to be dealt with under s 1292 of the Corporations Act are to be performed and exercised by a panel constituted under s 210A(2). 15 Section 210A(2) of the ASIC Act provides that the Chairperson of the Board is to determine in writing the members of the Board who are to constitute the Panel that is to hear the matter. 16 Section 1292 of the Corporations Act confers powers on the Board, if it is satisfied on an application by ASIC, to cancel or suspend the registration of the person as an auditor or liquidator. 17 Section 1292(2) of the Corporations Act deals with liquidators. Section 1292(2)(d) provides: (2) The Board may, if it is satisfied on an application by ASIC for a person who is registered as a liquidator to be dealt with under this section that, before, at or after the commencement of this section: … (d) that the person has failed, whether in or outside this jurisdiction, to carry out or perform adequately and properly: (i) the duties of a liquidator; or (ii) any duties or functions required by an Australian law to be carried out or performed by a registered liquidator; or is otherwise not a fit and proper person to remain registered as a liquidator; by order, cancel, or suspend for a specified period, the registration of the person as a liquidator. 18 Section 217(1) of the ASIC Act confers power on the Panel Chairperson to summon a person to give evidence at a hearing. 19 Section 219 of the ASIC Act imposes an obligation upon a person served with a prescribed summons to appear as a witness before the Board, to attend and give evidence. As I said in the introduction, the obligation is subject to the exception of "reasonable excuse". The section contains the procedure, to which I have referred, for the Chairperson to give a certificate, and it confers power on the Court where a certificate is given. 20 I will set out the whole of s 219 of the ASIC Act as follows: Failure of witnesses to attend and answer questions (1) A person served, as prescribed, with a summons to appear as a witness at a hearing must not: (a) fail to attend as required by the summons; or (b) fail to attend from day to day unless excused, or released from further attendance, by the Panel Chairperson. (2) A person appearing as a witness at a hearing must not: (a) when required pursuant to subsection 217(2) to either take an oath or make an affirmation--refuse or fail to comply with the requirement; or (b) refuse or fail to answer a question that he or she is required to answer by the Panel Chairperson; or (c) refuse or fail to produce a document that he or she was required to produce by a summons under subsection 217(1) served on him or her as prescribed. (2A) Subsections (1) and (2) do not apply to the extent that the person has a reasonable excuse. Note: A defendant bears an evidential burden in relation to the matters in this subsection, see subsection 13.3(3) of the Criminal Code. (3) A person must not, at a hearing, give evidence that is false or misleading. (4) A person must not contravene subsection (1), (2) or (3). Penalty: 10 penalty units or imprisonment for 3 months. (5) A person who contravenes subsection (3) is not guilty of an offence against subsection (4) if it is proved that he or she, when giving the evidence, believed on reasonable grounds that it was true and not misleading. (6) Where the Panel is satisfied that: (a) a person served, as prescribed, with a summons to appear as a witness at a hearing has, without reasonable excuse, failed to attend as required by paragraph (1)(a) or (b); or (b) a person appearing as a witness at a hearing has, without reasonable excuse: (i) when required pursuant to subsection 217(2) either to take an oath or make an affirmation; or (ii) when required by the Panel Chairperson to answer a question; or (iii) when required to produce a document by a summons under subsection 217(1) served on him or her as prescribed; refused or failed to comply with the requirement; the Panel Chairperson may, by instrument in writing, certify the failure to attend or the refusal or failure to comply with the requirement, as the case may be, to the Court. (7) Where a certificate is given under subsection (6), the Court may inquire into the case and, if it is satisfied that the person to whom the certificate relates has, without reasonable excuse, failed to attend or refused or failed to comply with a requirement as mentioned in the certificate: (a) may order the person to attend or to comply with the requirement at a hearing to be held at a time and place specified in the order; or (b) may punish the person in the same manner as if he or she had been guilty of contempt of the Court and, if it thinks fit, also make an order under paragraph (a)." 21 Section 68 of the ASIC Act provides that for the purpose of Division 2 of Part 11 (which includes s 219) it is not a reasonable excuse for a person to refuse or fail to give information, in accordance with a requirement made of the person, that the information might tend to incriminate the person or make the person liable to a penalty. 22 The note appearing under s 219(2A) of the ASIC Act refers to s 13.3(3) of the Criminal Code Act 1995 (Cth). That subsection is contained in Part 2.6 of the Criminal Code which deals with proof of criminal responsibility. I will set out the relevant portions of that Part: 13.1 Legal burden of proof--prosecution (1) The prosecution bears a legal burden of proving every element of an offence relevant to the guilt of the person charged. Note: See section 3.2 on what elements are relevant to a person's guilt. (2) The prosecution also bears a legal burden of disproving any matter in relation to which the defendant has discharged an evidential burden of proof imposed on the defendant. (3) In this Code: legal burden, in relation to a matter, means the burden of proving the existence of the matter. 13.2 Standard of proof--prosecution (1) A legal burden of proof on the prosecution must be discharged beyond reasonable doubt. (2) Subsection (1) does not apply if the law creating the offence specifies a different standard of proof. 13.3 Evidential burden of proof--defence (1) Subject to section 13.4, a burden of proof that a law imposes on a defendant is an evidential burden only. (2) A defendant who wishes to deny criminal responsibility by relying on a provision of Part 2.3 (other than section 7.3) bears an evidential burden in relation to that matter. (3) A defendant who wishes to rely on any exception, exemption, excuse, qualification or justification provided by the law creating an offence bears an evidential burden in relation to that matter. The exception, exemption, excuse, qualification or justification need not accompany the description of the offence. (4) The defendant no longer bears the evidential burden in relation to a matter if evidence sufficient to discharge the burden is adduced by the prosecution or by the court. (5) The question whether an evidential burden has been discharged is one of law. (6) In this Code: evidential burden, in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. 13.4 Legal burden of proof--defence A burden of proof that a law imposes on the defendant is a legal burden if and only if the law expressly: (a) specifies that the burden of proof in relation to the matter in question is a legal burden; or (b) requires the defendant to prove the matter; or (c) creates a presumption that the matter exists unless the contrary is proved. 23 Senior Counsel for Mr Albarran relied on a number of other provisions of the Criminal Code which deal with the elements of an offence. I will set out the provisions to which I was taken as follows: 3.1 Elements (1) An offence consists of physical elements and fault elements. 4.1 Physical elements (1) A physical element of an offence may be: (a) conduct; or (b) a result of conduct; or (c) a circumstance in which conduct, or a result of conduct, occurs. 5.1 Fault elements (1) A fault element for a particular physical element may be intention, knowledge, recklessness or negligence. (2) Subsection (1) does not prevent a law that creates a particular offence from specifying other fault elements for a physical element of that offence. 5.2 Intention (1) A person has intention with respect to conduct if he or she means to engage in that conduct. (2) A person has intention with respect to a circumstance if he or she believes that it exists or will exist. (3) A person has intention with respect to a result if he or she means to bring it about or is aware that it will occur in the ordinary course of events. 5.3 Knowledge A person has knowledge of a circumstance or a result if he or she is aware that it exists or will exist in the ordinary course of events. 5.6 Offences that do not specify fault elements (1) If the law creating the offence does not specify a fault element for a physical element that consists only of conduct, intention is the fault element for that physical element. (2) If the law creating the offence does not specify a fault element for a physical element that consists of a circumstance or a result, recklessness is the fault element for that physical element. 24 Section 9.3 of the Criminal Code is also relevant to the consideration of the issues raised on this application. I will set it out in full: 9.3 Mistake or ignorance of statute law (1) A person can be criminally responsible for an offence even if, at the time of the conduct constituting the offence, he or she is mistaken about, or ignorant of, the existence or content of an Act that directly or indirectly creates the offence or directly or indirectly affects the scope or operation of the offence. (2) Subsection (1) does not apply, and the person is not criminally responsible for the offence in those circumstances, if the Act is expressly to the contrary effect. The Issues 25 Three issues arise in this proceeding. The first issue is whether reliance on legal advice amounts to reasonable excuse. 26 Senior counsel for ASIC submits that reliance upon legal advice cannot constitute reasonable excuse; to permit such an excuse to be raised would be to defeat the very purpose of the proceeding before the Board. 27 Nevertheless, senior counsel for Mr Albarran points to the provisions of the Criminal Code set out above. The essence of his submissions is that Mr Albarran's evidence before me discharges the evidential burden referred to in s 13.3(3) of the Criminal Code. 28 The second issue is whether Mr Albarran received the legal advice that he claims to have relied upon. This is an issue of fact which turns upon whether I accept his evidence. 29 The third issue is whether, even if Mr Albarran received the advice that he claims, reliance upon it was reasonable. This issue turns upon the nature of the advice said to have been received and the circumstances in which the advice was communicated to him. 30 In order to determine the second and third issues, it is necessary to set out the relevant factual background. An important part of this centres upon an application made by Mr Albarran, several weeks prior to his attendance before the Board to give evidence, to be excused from attendance. 31 That application was unsuccessful. What was said by Mr Albarran's legal advisers, and by ASIC, prior to the hearing of the application, and by the Board Chairman, Mr Magarey, are critical to the determination of the issues before me. The Factual Background 32 On 23 December 2005, a Panel of the Board, constituted inter alia by Mr Magarey, in an application made by ASIC, found that Mr Albarran had failed within the meaning of s 1292(d)(ii) of the Corporations Act, to carry out or perform, adequately and properly, the duties or functions required by an Australian law to be carried out or performed by a registered liquidator. 33 The relevant finding of the Board was that Mr Albarran had participated in a contrived nominee arrangement to appoint two persons as administrators of Formula Engineering while he or his firm, Hall Chadwick: …in effect, were to, or actually did, perform functions of the appointed Administrator in respect of which his firm was to, and did receive, fees for work performed in circumstances where he himself and any member of his firm was precluded from accepting the appointment … because he had a conflict of interest as a result of the prior professional relationship with Formula Engineering. Although the Board concluded that Mr Albarran participated in contrived nominee arrangements, it found that he had no part in their creation. Moreover, the Board did not find that Mr Albarran acted dishonestly. 34 The gravamen of the Board's finding against Mr Albarran was that he did not properly understand his professional duty, or did not give it sufficient consideration, or simply ignored it; a reasonably competent liquidator would have given consideration to and understood that the contrived arrangements were contrary to published professional codes and standards. 35 On 3 May 2006, the Board made orders against Mr Albarran in his disciplinary proceedings. On 8 May 2006, Mr Albarran made application to the AAT for a review of the adverse determination. 36 Before the date of the Board's determination in 2005, Mr Albarran instituted proceedings in the High Court for a Constitutional writ to prohibit the Board from taking further steps in the disciplinary proceeding against him. The matter was remitted to the Federal Court which dismissed the application. Special leave to appeal was granted by the High Court on 29 September 2006 but the appeal was ultimately unsuccessful. 37 On 27 June 2006, at the request of ASIC, the Panel Chairman of the proceeding against the Partner issued a summons to Mr Albarran to appear before the Board on 18 December 2006 in that matter. The summons was served on 18 July 2006. 38 In November 2006, the solicitors who were acting for Mr Albarran in his disciplinary proceeding gave consideration as to whether he could decline to appear in answer to the summons to attend before the Board in the Partner's matter. The solicitors who were acting were NOTLawyers. The relevant persons were Mr Simon Gallant, a partner in that firm, and Mr David Blessington, an employed solicitor. 39 On 21 November 2006, Mr Blessington attended a conference with Mr AJ Sullivan QC and Mr K Eassie. Mr Sullivan was briefed as senior counsel for the Partner. Mr Eassie was briefed to appear for Mr Albarran in his disciplinary proceeding. 40 Mr Blessington's notes of the meeting include the following: Section 219 "reasonable excuse" Think should make submission to Chairperson of the Board - if deny (?) - 219(7). Options - CALB AAT Federal Court Prejudice - "de novo" hearing before the AAT Issue of claim by ASIC that can introduce fresh contentions in the AAT proceedings could also be of relevance here. Being compelled to give evidence in proceedings which may prejudice our position. … Best strategy would be for RA to attend on 18/12 - get ruling. If adverse we - have decision either give evidence or walk out … Letter to ASIC should consider "reasonable excuse". Eassie to research issue of "reasonable excuse" plus section 219 of ASIC Act - look to second reading speech. 41 Following that conference Mr Blessington sent an email to Mr Albarran. The email was sent in the afternoon of 21 November 2006 and it was copied to Mr Sullivan, Mr Eassie and Mr Gallant. It included the following: I met with Alan Sullivan and Kerry Eassie this morning to get advice on the way forward. All are reasonably confident that appropriate steps can be taken to prevent you giving evidence but of course, no guarantees can be given. Kerry and I had drafted a letter to ASIC setting out why it is inappropriate that you give evidence in [the Partner's] proceedings but Alan wants it expanded to include the bases for you having "reasonable excuse" for not attending/giving evidence. That expression is used in s 219 of the ASIC Act but research will have to be done as to the meaning it has been given in other cases. 42 On 12 December 2006 Mr Blessington wrote to ASIC contending that the summons issued to Mr Albarran in the Partner's proceeding was invalid. Serious allegations were made against ASIC including a contention that the summons was issued for the collateral purpose of a "dress rehearsal" of Mr Albarran's proceeding in the AAT and a conflict of interest on the part of the Panel in the Partner's proceeding. 43 It is not suggested that the letter was settled by Mr Sullivan or Mr Eassie. 44 The letter of 12 December 2006 included the following statement: In these circumstances, it would appear to be the case that the Summons was issued for an improper purpose, and should accordingly be held to be invalid, as an abuse of process (see Ganin v NSW Crime Commission (1993) 32 NSWLR 423). As well, and as a separate ground, Albarran relies upon what was said in the High Court in Taikato v R 139 ALR 386, that what amounts to a "reasonable excuse" depends not only on the circumstances of the individual case, but also on the purpose of the provision to which the defence of "reasonable excuse" is an exception. CALDB is obliged pursuant to s.218(2) of the ASIC Act to observe the rules of natural justice "… at and in connection with a hearing", and we submit that the matters referred to above, considered together, plainly constitute a reasonable excuse for him not to attend the hearing of the [Partner's] Proceedings to give evidence (Section 219(1) of the ASIC Act), as well as for refusing to comply otherwise with Section 219 of the ASIC Act. 45 Mr Blessington concluded his letter by stating that if ASIC did not agree not to call Mr Albarran in response to the summons, the solicitors had instructions to make an application to set it aside. 46 ASIC replied on 14 December 2006 stating that it would not agree not to call Mr Albarran at the hearing of the Partner's matter which had been reconvened to commence on 5 February 2007. ASIC denied the "baseless allegation" that the summons was issued for an improper purpose. ASIC observed that the summons was sought for the legitimate forensic purpose of having Mr Albarran available to give evidence relevant to ASIC's case for orders against the Partner. 47 Importantly, ASIC's letter of 14 December 2006 made it clear that the evidence which ASIC sought to adduce from Mr Albarran in the Partner's matter was the same evidence he had given in his own matter before the Board. 48 This is clearly stated in the following paragraph of ASIC's letter of 14 December 2006: There is no "dress rehearsal" of Mr Albarran's evidence for the AAT Proceedings. ASIC merely seeks to adduce from Mr Albarran the same evidence which he has already given at his own CALDB proceedings. ASIC has provided Mr Albarran with a copy of the transcript of the evidence he gave at his own CALDB proceedings. ASIC has also provided him with an outline of the evidence which ASIC expects to adduce from him. The outline is a summary of the evidence which Mr Albarran gave at his own CALDB proceedings. 49 On 15 December 2006 Mr Blessington forwarded a copy of ASIC's letter of 14 December 2006 to Mr Albarran. Mr Blessington stated that "Its contents are predictable." 50 On 19 December 2006 Mr Blessington wrote to the Board stating that Mr Albarran wished to make an application to the Panel hearing the Partner's proceeding, in the following terms: 1. that he be excused and/or released from further attendance in response to the Summons pursuant to Section 219(1)(b) of the ASIC Act; In the alternative: 2. that pursuant to sub-sections (1) and (2) of Section 219 of the ASIC Act he be excused from attendance in response to the Summons by reason of reasonable excuse in accordance of Section 219(2A) of the Act. 51 On 17 January 2007 a conference took place in the boardroom of NOTLawyers. Mr Albarran and the Partner were present. So too were Mr Blessington and Mr Eassie. It appears that Mr Gallant was also in attendance. 52 The notes of the meeting commence with the comment that: We do not want RA to give evidence in [the Partner's] matter because of possible detrimental effect on AAT proceedings. 53 The notes also state that Mr Albarran's position "is different to" the Partner's. 54 The Partner is recorded in the notes as having made reference to the possibility of Mr Albarran raising the privilege against self-incrimination. Mr Eassie's response is recorded in the following terms: that is not clear on the law. Should focus on reasonable excuse. 55 The notes of the conference of 17 January 2007 record that Mr Albarran asked what would happen if he refused to answer questions. The notes continue as follows:

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