Australian Securities and Investments Commission v Storm Financial Limited

JUDGE: REEVES J DATE: 21 DECEMBER 2011 PLACE: BRISBANE

EX TEMPORE REASONS FOR JUDGMENT 1 Challenger Managed Investments Limited and Challenger Limited ("Challenger") have objected to Australian Securities and Investments Commission ("ASIC") discovering to the other parties in these proceedings certain documents ASIC obtained from Challenger using its investigative powers under the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"). In these reasons I will refer to these documents as the Challenger documents. That objection was made under para 6 of the discovery plan, which is a schedule to the orders I made on 23 September 2011 in these proceedings. 2 On 14 December 2011, I joined Challenger as a party to these proceedings for the limited purpose of determining its objection. Challenger, therefore, has standing to pursue its objection in these proceedings. I have no doubt I have jurisdiction to deal with the issue as a matter that is ancillary to the substantive proceedings. 3 In pursuing its objection, Challenger has relied upon s 127 of the ASIC Act and various provisions of the Federal Court of Australia Act 1976 (Cth) and the Federal Court Rules 2011 that limit the discovery process to the steps that are necessary for the just, prompt, efficient and inexpensive disposal of these proceedings. 4 Challenger is quite correct in describing the discovery process in this way. That is how it is described constantly in the Federal Court of Australia Act 1976, the Federal Court Rules 2011 and the many authorities on the issue. However, I do not see how those provisions give rise to any rights in Challenger to constrain ASIC in how it deals with the Challenger documents in these proceedings. 5 Challenger says that s 127 of the ASIC Act imposes a duty on ASIC to keep the Challenger documents confidential. I reject that submission. I do not consider that that provision imposes any such positive obligation or duty on ASIC to keep the Challenger documents confidential. Instead I consider the context, purpose and language of the provision make it clear that it only imposes a negative obligation on ASIC not to make "unauthorised use or disclosure of the documents". 6 I do not consider that anything said by the High Court in Johns v Australian Securities Commission (1993) 178 CLR 408 ("Jones"), which deals with s 25 of the ASIC Act, is to the contrary. Section 25, it must be recalled, is in quite specific terms. It deals with the disclosure of a written record of an examination conducted by the Commission. Among other things, it imposes an obligation on the Commission to restrict the use of such a written record and imposes a penalty of $1,000 or imprisonment for three months in the event of a breach. This is a very different provision to s 127. 7 Nor do I consider that anything said in the decision of Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 2) [2011] FCA 1057 is to the contrary. All that decision says relevantly, again in relation to the provisions of s 25 of the ASIC Act, is that a person in the position of Challenger must be afforded procedural fairness in relation to any proposed use of - in that case and in Johns - the record of an examination conducted by ASIC. 8 While it undoubtedly has application in this case in relation to Challenger's rights to be afforded procedural fairness, those rights have now clearly been afforded in this case. As I said before, Challenger has been joined as a party in these proceedings for the limited purpose of hearing its objection and I have heard its objection today. In addition, it has been able to file an outline of submissions and points of claim in support of its objection. 9 If Challenger has any rights arising from the ASIC Act, they are limited to enforcing that negative obligation in s 127 of the ASIC Act that I mentioned before. If s 127 imposed a positive obligation to keep the Challenger documents confidential, there would be some strength in Challenger's claims that such an obligation would constrain the circumstances in which ASIC could provide the documents to the third parties. 10 It would be arguable, perhaps strongly, that ASIC would have to come to a conclusion that the documents were actually relevant before agreeing to any process whereby those documents were discovered to those third parties. However, that is not the situation here. The situation here is whether ASIC's negative obligation under s 127 places any constraints on my ordering, and therefore authorising, ASIC to disclose the Challenger documents in these proceedings. 11 ASIC is in an unusual situation in these proceedings. It is the repository of the Challenger documents, some 27,000 in all, having obtained them by use of its investigatory powers under the ASIC Act. Only a small proportion, something like 141 of them, is relevant to ASIC's case against the three banks in these proceedings. A larger proportion may be relevant to the three bank's defence of ASIC's action against them, or to the applicants, or the banks, in the two class actions that are being run in conjunction with these proceedings. 12 ASIC has no interest in assessing whether that is so, ie whether the Challenger documents are relevant to those other proceedings. To the contrary, it does not wish to incur the expense of doing so. Even if it were ordered to, I do not think it could be expected to assess whether or not the documents may be relevant to the three banks' defence of its action against them, much less whether they may be relevant to the applicants in the class action, or the defence of those actions by the banks involved in those proceedings. So, ASIC has taken, quite properly, a neutral and somewhat self-serving position. It has decided it will simply hand over the documents in bulk to the other parties and let them assess their relevance for their cases. 13 If one of those parties had subpoenaed the Challenger documents direct from Challenger, it would be necessary for them to show that they had an apparent relevance to the issues in the proceedings. That is adjectival, as distinct from substantive, or direct, relevance. So much is clear from the decision of Beaumont J in Trade Practices Commission v Arnotts Ltd (1990) ATPR 41-010 at 41-010(6); [1989] FCA 384. 14 In that event, the question posed would have been whether the subpoena would have had a legitimate forensic purpose in that respect. The proceeding concerned would have been the proceeding in which the documents were subpoenaed rather than these proceedings. Apparent relevance would there have been assessed by considering the issues raised by the pleadings in those proceedings. And if the party who issued the subpoena could not meet this test, the subpoena for the documents would be liable to be set aside as an abuse of the process of the Court. 15 It seems to me that in the unusual circumstances of this case, that is the test I should apply. I should therefore be satisfied that the documents have an apparent relevance to the issues in one or more of these three proceedings and therefore that there is a legitimate forensic purpose in the documents being disclosed. 16 In other words, I do not consider I should determine whether the Challenger documents should be disclosed by reference to the more stringent test of direct relevance that is applied under Pt 20 of the Federal Court Rules 2011. Apparent relevance, as distinct from direct relevance, obviously places a lower bar and is more likely to involve less costs and less delay to these proceedings. 17 So this really shifts the focus from ASIC to the other parties to these three proceedings. 18 On this approach, it is necessary for those parties to persuade me that the Challenger documents have some apparent relevance to the issues pleaded in the relevant proceedings, before I order ASIC to disclose them in those proceedings. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.