Australian Securities & Investments Commission v Axis International [2009] FCA 852 | Case summary

Jurisdiction 9 Jurisdiction is defined by "matter(s)" because the Commonwealth's judicial power is derived from Chapter III of the Constitution, which requires jurisdiction to be defined in those terms: IMF (Australia) Ltd v Sons of Gwalia (Administrator Appointed) (2004) 211 ALR 231 at [43]; Litmus Australia Pty Ltd (in liq) v Canty (2006) 57 ACSR 71 at [35] citing British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 at [5]-[6]. 10 In these proceedings, as was the position in Sons of Gwalia, ASIC relies on the jurisdiction and powers conferred by: (a) s 39B(1A) of the Judiciary Act 1903, which confers jurisdiction in any matter arising under any laws made by the Parliament; (b) s 21 of the Federal Court of Australia Act 1976 (Cth), which provides that the court "may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed"; and (c) s 1337B(1) of the Corporations Act 2001 (Cth), which confers jurisdiction on the Federal Court "with respect to civil matters arising under the Corporations legislation". 11 The Court's discretion under s 21 of the FCA "is confined by the considerations which mark out the boundaries of judicial power": Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582. 12 Accordingly, this Court's original jurisdiction to grant the relief sought by ASIC is found in either s 1337B of the Act or s 39B of the Judiciary Act 1903 (Cth). The question is whether this proceeding involves a "matter" within the meaning of those provisions. 13 Owston submits that in order for a "matter" to exist for the purposes of s 39B(1A) of the Judiciary Act, there must be a controversy as to some immediate right, duty or liability to be established by the Court's determination: Re: Judiciary and Navigation Acts (1921) 29 CLR 257 at 265; Direct Factory Outlets Pty Ltd v Westfield Management Ltd (2003) 132 FCR 428. Owston submits that on ASIC's case, no liability will be established on the part of Owston should ASIC be successful and points to the fact that ASIC does not seek recovery of damages in a representative capacity for shareholders, nor does the pleaded contravention give rise to a civil penalty. It claims that the relief sought is an advisory opinion on a purported contravention of the Act and does not quell any controversy between the parties. Here, Owston relies upon Bass v Permanent Trustee Co Ltd (1999) 161 ALR 399 and Re McBain; Ex parte Australian Catholic Bishops Conference (2002) 209 CLR 372at [61]-[62] per Gaudron and Gummow JJ. 14 The majority of the members of the High Court in Re: Judiciary and Navigation Acts explained that "a matter under the judicature provisions of the Constitution must involve some right or privilege or protection given by law, or the prevention, redress or punishment of some act inhibited by law" (at 266). Owston contends that in light of the statutory scheme there is no right, privilege or protection given to ASIC which is sought to be enforced, nor is the relief sought in the nature of preventative relief, or redress, or a punishment. 15 Owston accepts that declaratory relief is often given on the motion of a regulator, but it saysthat usually a declaration is only granted in conjunction with substantive relief which is in its nature either protective such as by the grant of injunctive relief or corrective advertising orders or alternatively a punishment by awarding, for example, civil penalties. It contends that a bare declaration will be made only in rare circumstances, absent other relief that gives effect to a right or obligation. It cites Gaudron J in Truth About Motorways Pty Limited v Macquarie Infrastructure Management Limited (2000) 200 CLR 591at [52]: There may be cases where a bare declaration that some legal requirement has been contravened will serve to redress some or all of the harm brought about by that contravention. Ainsworth v Criminal Justice Commission (109) was such a case. But a declaration cannot be made if it "will produce no foreseeable consequences for the parties". (110) That is not simply a matter of discretion. Rather, a declaration that produces no foreseeable consequences is so divorced from the administration of the law as not to involve a matter for the purposes of Ch III of the Constitution. And as it is not a matter for those purposes, it cannot engage the judicial power of the Commonwealth. (See Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582, per Mason CJ, Dawson, Toohey and Gaudron JJ). 16 The evidence supports a conclusion that the investors whom ASIC wants Owston to tell that it, Owston, may have contravened the Act are, by various means, already well aware of that possibility. It is correct as Owston points out that ASIC could have but has not written to, those investors and expressed its opinion that Owston has contravened the Act. Accordingly Owston submits that there is not any real consequence to the orders sought when the investors know the alleged fact, and in any event ASIC could have told them of its opinion as to the alleged fact without recourse to the Court. Owston says that the only additional effect of the orders sought is to gain the imprimatur of a declaration made by this Court, where some of the parties with respect to whom the declaration is made are not present. Taken together Owston submits that the declarations are advisory in effect and that the proposed publications order is equally so amounting to advice that the recipient may have a claim. It follows, submits Owston that the orders sought, by their nature, will not quell a controversy but rather the purpose of the orders is to create controversy. 17 Owston submits that the s 1324B order is not consequential on the declarations sought and that in terms it can only be consequential on a finding of a breach of the Act. It says that here the order sought is relevantly disconnected from the breach with no sufficient nexus, citing ASIC v McDougall (2006) 57 ACSR 175 at [69]. It says that it is not a remedy in the true sense for the alleged wrong, but amounts, in effect, to advice from ASIC, with the Court's endorsement, to the shareholders concerned. It says that a final determination between the parties of an issue that has no practical consequence between those parties does not convert a hypothetical question into a "matter", otherwise all hypothetical questions would be a "matter" once a contradictor was found. 18 Owston submits that no final determination or resolution of the alleged contravention will take place without additional factual findings and determinations of issues of law and that accordingly, the Court is being asked to consider a hypothetical situation where its decision will produce no foreseeable consequences for the parties as to which it relies upon Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; Australian Institute of Private Detectives Ltd v Privacy Commissioner (2004) 139 FCR 394. 19 Further Owston contends that the relief sought pursuant to section 1324B of the Act, will not, if granted, provide a guarantee that no future proceedings will be commenced in relation to the same issues and facts, because there is no indication as to how many, if any, shareholders might choose to commence proceedings resulting in the inefficient and unjust administration of justice. Accordingly, it contends, there will be nofinal resolution of the issue of the alleged contravention of s 727(1) of the Act. 20 This uncertainty, Owston submits, not only burdens it with a liability for additional costs, but forces it to consider evidentiary issues in the immediate proceedings that it would not be required to carry out in the usual course. Owston also contends that there is potential for inconsistent findings in the future litigation; at both fact and law. 21 Litigation funder IMF (Australia) Ltd ("IMF") and the liquidator of Firepower Holdings Group Limited have communicated with its shareholders in relation to potential claim against Owston and other defendants to the action commenced by ASIC. 22 Owston says that IMF's conduct, in writing to Firepower Holdings Group Limited's shareholders to inform them that they may have a potential cause of action against Owston and/or the other defendants, coupled with the nature of the relief sought by ASIC, effectively results in shareholders being encouraged to commence future proceedings against Owston. Accordingly, Owston says, there is a real possibility that will be required to re-litigate the issues in dispute in these proceedings. 23 I do not accept Owston's submissions. In my opinion, the present proceedings fall within the majority's several alternativedescriptions of "matter"in Re: Judiciary and Navigation Acts. They concern the rights and protections conferred by s 727 of the Act as well as the redress available under ss 1324B and 1337B of the Act and under s 21 of the Federal Court Act and s 39B(1A) of the Judiciary Act for contraventions of s 727 of the Act. Re: Judiciary and Navigation Acts is not authority for the proposition that for a "matter" to exist, a claim of civil penalty or for recovery of damages or some relief which undoes the wrongmust be present, or that somehow the proceedings must ensure finality of litigation by ensuring that there is no real possibility that another plaintiff will commence proceedings in relation to some or all of the issues in the proceedings. Nor is it authority to support a contention that bare declaratory relief which does not meet or aid one of those ends will not ordinarily be granted. Involved in this proceeding is at least the question of the right of investors to receive a prospectus under the provisions of the Act and the corresponding duty of Owston to provide one. Owston is liable to the declaratory relief sought. These are sufficient. 24 In Direct Factory Outlets Pty Ltd v Westfield Management Ltd (2003) 132 FCR 428 Cooper J stated: (a) the word "right" in this context is used in a sense that is wide and loose [12]; and (b) there "need not be a cause of action before the power [under s 21 of the Federal Court Act 1976 (Cth) to make a declaration] may be exercised, provided the subject matter in respect of which the declaration is sought is within the jurisdiction of the court and there is a real controversy to be determined" [14]. 25 I respectfully agree with Cooper J as to this and reject Owston's submission, in effect, that declaratory relief is only available in circumstances where ASIC is suing for damages or a civil penalty, absent which, a "matter" cannot be said to exist. Section 21 of the Federal Court Act also contradicts that submission. It expressly provides that declaratory relief may be granted "whether or not any consequential relief is or could be claimed". In any event ASIC is seeking consequential orders under s 1324B of the Act. 26 In Direct Factory Outlets Pty Ltd v Westfield Management Ltd, there were questions as to whether the applicant had a sufficient interest to bring the proceedings and whether there was utility in the declarations sought. It was said that the applicant had no personal right or interest that it sought to assert or protect in the proceedings, and that any interest it had was purely commercial. By contrast, in this case ASIC as the corporate regulator is charged with enforcement of the Act and has a public interest in pursuing this action against Owston. 27 Bass v Permanent Trustee Co Ltd does not assist Owston. There is nothing hypothetical or advisory about the present proceedings. They involve the corporate regulator alleging various actual breaches of the law. The defendants deny those breaches. The result will quell that real controversy between them and will finally determine, subject only to any appeals, ASIC's allegations of breaches of s 727 of the Act and whether declarations of contraventions should be made together withconsequential relief under s 1324B. 28 Owston also cites Australian Institute of Private Detectives Ltd v Privacy Commissioner (2004) 139 FCR 394. However in that case the applicant sought declarations "independently of any specific factual allegations" [29] which went "merely to future events or circumstances" which would not quell any existing controversy between the parties to the proceedings [31] and which was, in effect, seeking an advisory opinion [32]. A Full Court of this Court has expressed doubt as to whether an application for a declaration as to the legality of proposed future conduct involves a "matter" within the meaning of ss 75, 76 and 77 of the Constitution of the Commonwealth: IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator appointed) (2005) 143 FCR 274 per Moore and Emmett at [16], [67] and [68]; (cf IMF (Australia) Ltd v Sons of Gwalia (Administrator Appointed) (2004) 211 ALR 231 per then French J at [43]. That, however, is not this case. 29 In the present proceedings, by contrast, ASIC has made quite specific factual allegations concerning past events so that the court's decision will quell the controversy between it and Owston. Australian Institute of Private Detectives is not authority for the proposition that declarations must quell all controversies about an issue that might arise between a defendant and persons who are not parties to the litigation and who might sue that defendant about the same or similar issues. 30 Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 was cited by Owston in support of the proposition that the Court may not be "forced to consider a hypothetical situation where its decision will produce no foreseeable consequences for the parties". Jododex is not authority for such a proposition. Rather, this formulation reflects the language of the joint judgment in Ainsworth at p 582 adopting what had been said in University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10 as to a hypothetical question and in Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188, as to "foreseeable consequences". It is also the formulation adopted by Gaudron J in Truth About Motorways at [52]. Gibbs J at 435 in Jododex said that the jurisdiction to make a declaration is a very wide one. Jododex is, as was also approved by the majority judgment in Ainsworth, authority, at 437, that the power of superior courts to grant declaratory relief is discretionary which "it is neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise". 31 In any event, the issues in these proceedings are not hypothetical. Further, there will be foreseeable consequences here, as the plaintiff will, as a regulator, have obtained a declaration of the court expressing public disapproval of a breach of the law and orders to provide information under s 1324B may also follow from the declarations. 32 The jurisdiction to grant declaratory relief is wide. In JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432 at 435-436 there is a useful collection of relevant authority to that effect. King CJ, with whom Prior and Perry JJ agreed observed: Authoritative judicial statements make it clear that the jurisdiction to grant declaratory relief is very wide and that judicial pronouncements appearing to restrict the circumstances in which such relief will be granted relate to the sound exercise of the discretion rather than to jurisdiction; Ibeneweka v Egbuna [1964] 1 WLR 219 at 225; Forster v Jododex Australia Pty Ltd esp per Gibbs J at 438; Salmar Holdings Pty Ltd v Hornsby Shire Council [1971] 1 NSWLR 192 per Mason JA at 201. It is not necessary that the plaintiff have a cause of action against the defendant: Guaranty Trust Company of New York v Hannay and Co [1915] 2 KB 536. A statement by Lord Sterndale MR in Hanson v Radcliffe Urban District Council [1922] 2 Ch 490 at 507, quoted by Gibbs J in Forster v Jododex at 435, appeared to confine the otherwise unlimited character of the jurisdiction to cases involving "a question of defining the rights of two parties". As was pointed out, however, by Street CJ in Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 at 51, that statement was made "at a time when the declaratory jurisdiction had not achieved the full development manifested in the last 20 or 30 years." By 1970 the Privy Council could say in Rediffusion (Hong Kong) Ltd v Attorney-General of Hong Kong [1970] AC 1136 at 1158 that to exclude the jurisdiction it must appear "that the questions were purely abstract questions the answers to which were incapable of affecting any existing or future legal rights of the plaintiffs" [emphasis mine]. In Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation (above), Street CJ (at 53) repudiated the notion of jurisdictional cut-off points in relation to declaratory relief. Moffitt P said (at 57): The proper conclusion to be drawn concerning the power to make a declaration is that the jurisdiction (in the strict sense) to grant declaratory relief in a properly constituted action is very wide, so that no particular limitation can be pointed to … I can find no warrant for the imposition by the courts of a self-denying restriction on their jurisdiction to grant declaratory relief. In my opinion there is no jurisdictional limit. The court's power to grant such relief is "only limited by its own discretion" (Hanson v Radcliffe at 507), and the boundaries of judicial power: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582. 33 As Young J in Re McDougall: Australian Securities & Investments Commission v McDougall (2006) 57 ACSR 175at [55]observed, the courts, since Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 have recognised that the grant of declaratory relief on the application of a statutory body such as ASIC may serve important law enforcement purposes: Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 at 603; 14 ACLR 644 at 647; Australian Securities & Investments Commission v Sweeney [2001] NSWSC 114 at [30]-[31]; Australian Securities & Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561-574. 34 Young J at [55] further observed that: ASIC is charged with the administration and enforcement of the Act, and there will be many cases where it is in the public interest for the courts to make a declaration on ASIC's application that the Act has been contravened in specified respects. The making of such a declaration does not simply record the outcome of enforcement proceedings; it may also be an appropriate way of marking the court's disapproval of the contravening conduct. and at [57] that: There is a clear public interest in making declarations that will record the contraventions of the Act, and express the court's strong disapproval of the contravening conduct. 35 This last observation reflects what was said by a Full Court in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89. It was there held that the Court has power under s 21 of the Federal Court of Australia Act to make a declaration of right in proceedings for injunctive relief brought under s 80 of the Trade Practices Act 1974 (Cth) irrespective of whether injunctive relief is granted or not: Sheppard J at p 98 (Foster J agreeing at p 106); Hill J at 110. As Sheppard J said: "[a]s in [Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121], it is often useful to be able to make a declaration in a case that does not warrant the granting of injunctive relief. The making of declaratory orders in such cases without the grant of injunctive relief in litigation brought under the general law to enforce public rights is not an uncommon course." In the same case, Hill J said (at 110) [t]here can be little doubt that a declaration might be obtained by a regulatory authority that particular conduct is in breach of a statutory provision … It has never been suggested that no power exists to grant such declaratory relief merely because the consequence of a declaration is to declare the existence of a wrong. The declaration that an offence has been committed is the concomitant of the non-existence of a right. Semantically, it may be said to be the declaration of a negative right. It is appropriate, in my view, to refer to it as a declaration of right. 36 In Australian Softwood Forests at first instance, both declaratory and injunctive relief was granted. When before the New South Wales Court of Appeal Hutley JA, with whom Reynolds and Samuels JJA agreed, declined to uphold thegrant of declarations observing that they were "little more than prefatory averments to the grant of an injunction". That observation was expressly rejected by Gibbs CJ and by implication also by the rest of the High Court which declined to grant injunctive relief but considered it appropriate to make declarations in the terms made by Helsham CJ in Eq at first instance but limited to certain properties. The declarations were to the effect that there was a "scheme" that involved the creation of "interests" within s 76 of the Companies Act 1961 (NSW) and that Div 5 of Part IV had been breached. 37 Here Owston says that there is no real consequence to the declaratory orders sought as it does not vindicate any right provided for by the Act or require Owston to do anything, or undo any harm or provide compensation. It is no more, Owston says, than a stepping stone or a hook for orders pursuant to s 1324B. This is, in substance, to adopt the approach of the New South Wales Court of Appeal in Australian Softwood Forestswhich was disapproved by the High Court. 38 Austin J in Australian Securities & Investments Commission v Sweeney (2001) NSWSC 114 at 30-31 said: It is beyond contest that this Court has plenary jurisdiction to make a declaratory order concerning contravention of the Corporations Law, by virtue of ss 23 and 75 of the Supreme Court Act 1970 (NSW). In Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, the High Court expressly disagreed with the Court of Appeal of New South Wales, which had declined to grant a declaration with respect to contravention of the 'prescribed interests' provisions of the Companies Act 1961 (NSW). Gibbs CJ remarked that it was proper to grant a declaration in that case although it had been agreed that an injunction was not an appropriate remedy (at 125). In Corporate Affairs Commission v Transphere Pty Ltd (1989) 7 ACLC 205, 209, Young J dealt with the question more fully. He observed that, while a declaration will not ordinarily be made that a defendant has committed a crime, there is jurisdiction to do so in a proper case. In his Honour's view, older cases which discouraged a statutory authority from commencing proceedings for declaratory relief are no longer applicable, in view of the changed social climate, and the Court will now grant declaratory relief at the suit of the statutory authority which exists to regulate an industry, in an appropriate case: at 214. In his Honour's view, the fact that the subject matter of the declaration is of public interest is an important consideration in favour of the granting of declaratory relief, even though the order may be of only slight utility: at 213. In that case the Court declined to make a declaratory order, because (inter alia) the declaration would affect investors who were not parties to the proceedings. That consideration is not present here. The approach taken in the Federal Court is very similar: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 113 ALR 257. and at 34-35: The present proceedings have been brought by the public regulator to enforce the corporations and securities legislation. According to s 1(2) of the Australian Securities and Investments Commission Act 1989 (Cth), in performing its functions and exercising its powers, the plaintiff must strive to achieve various objectives, including: • to promote the confident and informed participation of investors and consumers in the financial system; • to administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and • to take whatever action it can take, and is necessary, in order to enforce and give effect to the laws that confer functions and powers on it. These provisions imply that it is appropriate for the Commission to take civil proceedings for declaratory and injunctive relief in respect of past events, even if there is no risk of repetition, where the outcome may establish that the conduct complained of was wrongful (and thereby mark the Court's and the community's disapproval of it) and may deter other wrongdoers. It is appropriate for the Court to take these matters into account in the exercise of its discretion to grant or refuse such relief. 39 Davies AJ in Australian Securities & Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at [38] adopted what Austin J had said in Sweeney as well as by Young J in Corporate Affairs Commission v Transphere Pty Ltd (1989) 7 ACLC 205 at 209. In particular his Honour agreed with the views expressed by their Honours that when declarations are sought by a public authority such as ASIC then the declaration should be made if it is in the public interest to do so (at [39]). 40 Gray J in ASIC v West (2008) 100 SASR 496 at [203] adopted the same approach to the grant of declaratory relief in favour of ASIC. More recently a bare declaration was granted by Finkelstein J in Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487. The Court declared that the "scheme" in question was an unregistered managed investment scheme in contravention of s 601ED(5) of the Act. His Honour said that the power to do so may be exercised whether or not other relief is sought and rejected the defendant's submission that a mere declaration would have no utility as the scheme had already been wound up following the winding up of the HLP companies, for the reason that: … it is appropriate to make the declaration sought by ASIC. Many people put money into the scheme. They are entitled to know that the scheme was illegal and that is one reason why the HLP group was wound up. The declaration will not enable the investors to recover their money. But at least it will inform them what they had got themselves into. 41 I agree, respectfully, that this approach is another cogent reason for the grant of such declaratory relief in addition to the clear expression of the Court's disapproval of such conduct. 42 I am satisfied that these proceedings constitute relevantly a "matter" which enlivens the Court's jurisdiction. The plaintiff, as the public regulatory agency charged with enforcing the Act, has a real interest in raising the questions to be litigated in the current proceedings. It is not a hypothetical case but involves real questions of fact and law between the corporate regulator and Owston as the appropriate contradictor. The courts have for a considerable period consistently concluded that it is appropriate for ASIC to take civil proceedings for declaratory relief in respect of past events, even if there is no risk of repetition, where the outcome may establish that the conduct complained of was wrongful and thereby mark the court's and the community's disapproval of it and may deter other wrongdoers. I have referred to a number of these authorities. This is so, on the authorities, whether or not there is a cause of action against the defendant, and whether or not other relief is sought. Further, s 21 of the Federal Court Act provides, as I observed earlier, that a "suit is not open to objection on the ground that a declaratory order only is sought". 43 It also informs those affected, for example investors, as to what occurred as a matter of law: ASIC v HLP Financial Planning. Were it necessary, and in my opinion it is not, any possible doubt over the court's jurisdiction is removed by the obvious relation between the declarations that the plaintiff seeks and the injunctive relief sought under s 1324B.

Australian Securities & Investments Commission v Axis International

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Judgment (18 paragraphs)

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Cases Cited (24)

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