Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd

LEE J: 1 This matter raises a potentially important issue as to civil penalty proceedings in this Court. In this proceeding, the Australian Securities & Investments Commission (ASIC) seeks declarations pursuant to s 1317E of the Corporations Act 2001 (Cth) (Corporations Act) in relation to contraventions by the defendant (AMPFP) of s 961L of the Corporations Act. ASIC also seeks a declaration of contravention under s 1317E of the Corporations Act and the imposition of civil penalties pursuant to s 1317G. 2 As can be seen, this case is an example of a genus of civil proceeding which involves "public or other analogous rights" and consequently, at least in some respects, gives rise to different considerations to ordinary inter partes proceedings: see Australian Securities & Investments Commission v Rich [2004] NSWSC 836; (2004) 50 ACSR 500 at 502-505 [5]-[15]. 3 The proceeding was commenced by the filing of a concise statement (as provided for in the Commercial and Corporations Practice Note (C&C-1)) on 27 June 2018. It was made returnable before the Court for a first case management hearing on 20 July 2018. 4 The conduct of the proceeding was subject to the terms of the Central Practice Note: National Court Framework and Case Management (CPN-1). In relation to first case management hearings, CPN-1, at [8.5], provides that prior to the hearing, a number of matters should be considered by the parties in the course of their preparation. One of the aims of the parties and their lawyers in charting the interlocutory progress of the case should be to eliminate all unnecessary process and procedural costs. Facilitation of the overarching purpose should be the lodestar by which the parties propose and discuss orders for the efficient progress of the case. In particular, CPN-1 makes reference to the necessity for the parties to give consideration, prior to the first case management hearing, as to how the justiciable issues may best be managed, such as the possible separation of liability and damages or penalty, identifying issues of fact or law ripe for preliminary determination, and considering whether or not some or all of the issues are susceptible to being referred to a referee under s 54A of the Federal Court of Australia Act 1976 (Cth) (Act) and Div 28.6 of the Federal Court Rules 2011 (Cth). 5 Speaking generally (and without in any way criticising the lawyers in the present case who have co-operated with one another and the Court with efficiency), experience indicates that many practitioners still regard the first case management hearing as some form of directions hearing. Such an approach is inconsistent with both the terms of, and the philosophy behind, CPN-1. The Court is involved, from the beginning, in case management. The Court's role is not to affix wearily a rubber stamp to agreed directions which reflect the stately progress of litigation conducted by reference to expectations which antedate the revolution in case management reflected in this Court by the enactment of Part VB of the Act (overarching purpose provisions). 6 The first case management hearing in this proceeding was short. Prior to the hearing, ASIC's solicitors contacted my Associate with the news that the parties were in the "process of conferring with the defendant's solicitors on appropriate orders to be sought at the first case management hearing". To adopt the words of Dr Pritchard SC, who appeared at the first case management hearing for ASIC, they came "fairly close". The parties agreed that the matter should proceed by way of pleadings. The only controversy was whether ASIC should also be required to provide particulars. As I indicated to counsel for AMPFP, Ms Collins SC, given that ASIC had agreed to put on a statement of claim, it seemed a bit premature to proceed on the assumption that there would be a need to provide supplementary particulars. 7 In any event, orders were then made in accordance with the parties' wishes. This being that the plaintiff file and serve a statement of claim; the defendant file and serve a defence; the plaintiff file and serve a reply; and the matter be listed for a further case management hearing on 13 September 2018. At this point, I indicated to the parties that consistently with the parties' wishes, I was content to defer extensive case management discussions until the adjourned date, when sufficient time would be set aside to identify a likely hearing date and then fashion appropriate orders consistent with the overarching purpose to ensure that the matter was able to be determined with the minimum of cost and with the maximum of efficiency. 8 What then occurred was that the parties provided a minute of order to my chambers in which they sought that the case management conference listed for 13 September 2018 be vacated; the time by which the defendant was to file and serve a defence to the statement of claim be extended until 14 September 2018; and that, by 28 September 2018, the plaintiff was to file and serve a reply. 9 The proposed date for a further case management hearing was set as 11 October 2018. In accordance with what I had previously indicated to the parties, what was to then take place was an extended case management hearing. 10 As it happened, the plaintiff did not file a reply, and the defence filed by AMPFP, did serve, at least in some respects, to narrow issues. During the course of the further case management hearing on 11 October, it became apparent that ASIC had retained two experts and proposed to file expert reports from both of them in accordance with orders that had been agreed between the parties and were jointly proposed to the Court. Evidence filed subsequent to that case management conference indicates that those experts and their disciplines were as follows: (a) Ms Sandra Birkensleigh - Ms Birkensleigh has expertise in compliance and risk management in the provision of financial services (including insurance and superannuation) and was retained to provide an expert report on the steps that should have been taken by AMPFP to ensure compliance by authorised representatives with best-interest obligations and whether the steps taken by AMPFP were reasonable in the circumstances. (b) Mr Neil Kendall - Mr Kendall is a financial planner with expertise in the provision of advice in relation to, inter alia, insurance products. He has apparently reviewed the files of all of the clients referred to in the statement of claim, and it is proposed he provide a report setting out his opinion on whether the advice provided to those clients was in their best interests and was appropriate. 11 The evidence discloses that ASIC engaged Ms Birkensleigh in July 2016 and Mr Kendall in December 2016. Accordingly, both were engaged a long time before the present proceeding was commenced by ASIC. 12 I indicated that it was far from self-evident to me that it was appropriate that this matter proceed to hearing by way of the "usual" exchange of expert evidence from each party and that it may be appropriate for a referee to be appointed to inquire into, and report upon, relevant questions in the two areas of specialised opinion identified. The position taken at the case management hearing was that ASIC immediately opposed such a course, and AMPFP indicated qualified support. 13 Given that the issue of referral of some relevant questions had apparently not been considered prior to the case management hearing, I gave leave for the parties to file any further affidavit evidence or submissions. I noted that I would then deal with the issue as to whether I would appoint a referee in relation to certain questions or, alternatively, make orders in accordance with the short minutes of order that had been provided at the case management hearing, which provided for an exchange of expert evidence. 14 In Kadam v MiiResorts Group 1 Pty Limited (No 4) [2017] FCA 1139; (2017) 252 FCR 298, at 307-314 [35]-[63], I set out the history leading to the introduction of a procedure for the appointment of referees into the Act and the importance of dispelling the notion that all issues of fact and law should necessarily be determined by a judge upon competing expert evidence adduced by the parties. Since this case, the Chief Justice has noted in Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340; (2017) 19 ANZ Insurance Cases 62-158 at 76025-76026 [13] his agreement with the matters set out in those paragraphs. What I indicated at 307-308 [35] in Kadam bears repetition: At the risk of generalisation, there seems to be an imperfect recognition by the profession generally as to the flexibility and cost savings which can be achieved by the early adoption of references in this Court. Many appear to assume that a stately procession of expert reports, followed by a conclave and joint report is somehow a "given" in this Court in presenting a technical question for resolution, or that all matters of law must be resolved by a judge. This is obviously incorrect but partly is explicable by reason of the fact that the provisions relating to references in this Court are not of long standing and that references have not been a usual feature of commercial litigation in this Court. It is also perhaps understandable given the history of references in Australia and, in particular, the different reception of the reference procedure throughout the various States. 15 What is clear from Kadam and subsequent cases, is that the question of whether a referee should be appointed is quintessentially a case management decision, but, like all case management decisions, in considering whether to make an order for reference, the starting (and, in many cases, the finishing) point will be the consideration of the overarching purpose, being the just determination of the relevant controversy in an efficient, timely and cost-effective manner. 16 Added to this, in the context of this case, is an issue raised by ASIC about the bespoke nature of civil penalty proceedings. ASIC does not contend that it is impossible to appoint a referee in civil penalty proceedings. Indeed, despite its hostility in the present case, ASIC accepted that there may be cases where a court-appointed referee may be desirable, and, "ASIC is always open to exploring innovative ways to more efficiently progress litigation and minimise the associated costs". The openness of ASIC to appointments of referees evident from this approach, is not only consistent with the overarching purpose, but also with the responsibility of ASIC as a model litigant. In my view, there is nothing about the nature of civil penalty proceedings which renders the referee process inapt as a matter of principle. In Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482, French CJ, Kiefel, Bell, Nettle and Gordon JJ noted the differences between criminal prosecutions, civil penalty proceedings and ordinary civil proceedings. At 505 [53], their Honours noted: Civil penalty proceedings are civil proceedings and therefore an adversarial contest in which the issues and scope of possible relief are largely framed and limited as the parties may choose, the standard of proof is upon the balance of probabilities and the respondent is denied most of the procedural protections of an accused in criminal proceedings 17 Any notion that in a civil penalty case one or other of the parties is entitled to a judge determining all issues of fact and law ignores a fundamental reality as to the way litigation is conducted in this country. A referee has long been regarded as a form of special jury. For centuries, the mode of trial at common law has either been by a judge sitting with a jury or, at least, has very often been the case. Moreover, it would be very odd if an accused in a criminal proceeding (where generally, absent summary offences, issues of fact will determined by a jury) is deprived of a "right" to have such issues determined by a judge, and yet a right exists for a defendant to civil penalty proceedings to have a judge find the facts. 18 Turning to the present case, ASIC raises five matters upon which it relies to oppose the appointment of any referee. 19 First, it is contended that significant work has already been done in preparing expert reports. I give this factor little weight. The choice made by ASIC was to retain experts well in advance of the proceeding. No doubt, those experts have or are likely to provide valuable insights to ASIC. It is difficult for me to see why the work that has hitherto been done by the experts could properly be regarded as "wasted costs" in circumstances where it may be that ASIC will have the benefit of the work performed to date and, indeed, any referee, if appointed, would have the ability to liaise with any experts retained by either party for the purposes of conducting the inquiry and preparing any report. 20 Further, although ASIC makes the point that both experts have been briefed with a very substantial body of documentary material and have made significant progress in consideration of that material in the preparation of their reports, the real question is what is the most cost effective and expedient way of obtaining opinions in relation to the topics the subject of the proposed experts' reports at the ultimate hearing. The counterfactual to appointing a referee is not only for the completion of the expert reports on behalf of ASIC, but also the necessity for: (a) AMPFP to prepare responsive expert reports (assuming the relevant opinions are in issue); (b) for there then to be reports in reply; (c) a joint conclave under the supervision of a Registrar of the Court; and then (d) the possibility of concurrent evidence at the hearing. The focus must be on future costs and efficiencies and the fact that there have been costs spent to date by ASIC does not seem to me to amount to a substantial reason to reach the conclusion that a referee should not be appointed. 21 Secondly, it is said by ASIC that there are a range of other risks and uncertainties involved in the referee process which have a potential to delay or derail this proceeding. This is said to include the need to identify appropriately qualified experts, the process of seeking to agree the questions, assumptions or material to be provided to the referees, and the scope for substantial disputes concerning the adoption of referees' reports. I will come back to potential delay, but insofar as adoption is concerned, the fact that the reports may not be adopted because of some patent misapprehension by a referee is a matter to which I had specific regard in Kadam and rejected. As I noted in Kadam at 313-314 [62]: … the seminal judgment as to adoption of a report of a referee is that of Gleeson CJ in [Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549]. In that case, the Chief Justice made plain (at 563-564) that in deciding whether to adopt, vary or reject a report, what is involved is a judicial discretion to be exercised consistently with both the object and purpose of the Rules of Court and the wider setting in which they take their place. The very purpose of the reference procedure is to provide, where the interests of justice dictate, "a form of partial resolution of disputes alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest". Of course, if the referee's report reveals some error of principle, excess of jurisdiction, patent misapprehension of the evidence, or perversity or manifest unreasonableness in fact-finding, it will ordinarily be rejected but, critically, the "right to be heard does not involve the right to be heard twice" … Of course, it is to be expected that in some cases problems will arise if a reference is conducted maladroitly or a report has deficiencies, but that is not a reason to eschew a reference that would, consistently with the mandates of the overarching purpose, otherwise be appropriate. (citations omitted) 22 Thirdly, AMPFP is said not to have made a formal application for orders under s 54A of the Act. Again, this is a matter which I dealt with in Kadam, noting that it is for the Court to form a view as to the procedural steps that should be taken to best facilitate the overarching purpose. The views of the parties are relevant in that assessment but are not determinative: see Kadam at 310 [46]. 23 Fourthly, it is said (somewhat curiously, given the limited procedural history of the case and the fact, because of the way the parties approached the case, there has only been one substantive case management hearing), that the appointment of any referee would amount to a "significant change of direction in the conduct of these proceedings". To the extent that any direction had been set, it was one that was set apparently without consideration of whether or not a referee should be appointed and certainly without any discussion with the Court at a case management hearing. 24 Fifthly, and connected to the above points, it is said that the orders suggested by the parties at the case management hearing reflect an approach to the expert issues which is "agreed, orthodox and on track for a hearing on liability commencing on 3 June 2019". I will come back to this point below. 25 The position of AMPFP is that it sees force in the possibility of a referee being appointed to deal with particular identified issues, both in terms of the likely cost to the parties and the efficient use of Court resources. However, at present, AMPFP is unable to make any positive submission that the appointment of a referee will certainly be more efficient than the alternative proposed by ASIC and submits that this would require further discussions between the parties as to the precise nature of the matters that might be the subject of reference and as to the process to be adopted. 26 AMPFP reflects ASIC's submissions in noting that the "serious nature of the allegations made in this case" heightens the care that must be devoted to ensuring the appropriateness of the process adopted. AMPFP (with respect correctly), agrees with ASIC, that this fact does not necessarily foreclose the use of a referee. Rather, it is a matter to which attention would be directed during the process of determining the terms of reference and the process to be adopted. 27 For reasons which will become evident, it is unnecessary for me to detail the nature of the proposed topics for any references in this case, but it suffices for present purposes to note that I consider that the topics upon which expert evidence is being sought in this case were particularly apt to be the subject of inquiry and report by referees. 28 Having considered the parties' submissions, the only point of substance made in opposition to references being ordered is that I agree, having regard to the nature of material to be considered and the scope of the relevant tasks, that it will take some time to identify appropriate referees and also to ensure that the questions, assumptions and material provided are identified with sufficient particularity to ensure that the referee process does not miscarry and affords appropriate procedural fairness. Although there is no evidence of the fact, I assume that it is highly likely that AMPFP has already, like ASIC, engaged experts and may have, indeed, provided some preliminary briefings to experts. 29 With not inconsiderable hesitation, given the fact that this matter was not raised at the first case management hearing and extended debate about it was deferred until after a hearing date was set, I have determined that it would not be appropriate, in the circumstances of this case, to order any references. What this case highlights, however, is the necessity for parties, including regulators, to give close regard to the requirements of Central Practice Note: National Court Framework and Case Management (CPN-1) and to consider whether consistent with the overarching purpose, it is appropriate, even in litigation of this sort, to adopt the expedient of referees being appointed to deal with technical matters or matters which often are dealt with by opinion evidence. 30 It is for these reasons that I propose to make orders in accordance with the short minutes of order that have been provided by ASIC with their submissions filed pursuant to the orders of the Court. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.