Australian Securities & Investments Commission v Loiterton

Federal Court of Australia|2000-07-20|Before: Mathews J

Introduction 1 The issue involved in this case is, on one view, a small one. However its consequences are potentially far reaching. The issue is simply this: can counsel be retained in an investigation under Part 3 of the Australian Securities and Investments Commission Act 1989 (Cth) ("the Act") to ask questions on behalf of inspectors? Or, more precisely, can an inspector require an examinee to answer questions put to the examinee by counsel retained on behalf of the inspectors?

Background 2 This issue arose in the following circumstances. The Australian Securities and Investments Commission ("the Commission") is presently conducting an investigation into the affairs of Clifford Corporation Limited (ACN 000 750 103) which was placed into liquidation on 23 March 1999. The Commission commenced the investigation pursuant to s 13(1) of the Act on 8 December 1998. Ron Dunlop, Peter Riordan and Kathryn Haigh, being staff members of the Commission, were authorised by the Commission to conduct the investigation. 3 On 27 June 2000 the three delegates signed a notice requiring the respondent ("Mr Loiterton") to appear on 12 July 2000 before the inspectors to answer questions put to him in to relation to the investigation. Mr Loiterton attended, as requested, in the presence of his solicitor Mr Biber. He was entitled to have a lawyer present by virtue of s 23(1) of the Act. The proceedings were conducted by Ms Haigh, who commenced with the following observation: "This is the examination of Mr John Barrie Loiterton on 12 July 2000 … I will be conducting this examination pursuant to a delegation granted to me by the Australian Securities and Investments Commission. …Ron Dunlop and Peter Riordan, staff members of the Australian Securities and Investments Commission, will also conduct the examination." 4 Under s 22 of the Act the examination is required to take place in private. Other than the inspector, the examinee and the examinee's lawyer, the only persons entitled to be present are staff members approved by the Commission or person directed by the inspector to be present at the examination. In this case Ms Haigh directed that Mr David Hammerschlag be present at the examination. She described him as "Mr David Hammerschlag of counsel, who is assisting the inspectors". 5 After certain preliminary formalities, Mr Loiterton took an oath that the statements he would make would be true. He then gave his name, address and date of birth. Ms Haigh said to him "Mr Loiterton, Mr Hammerschlag will now ask questions of you on behalf of the inspectors". Mr Hammerschlag then showed a document to Mr Loiterton and asked him to identify it. Mr Biber objected to the question on the basis that Mr Hammerschlag, not being an inspector or a delegate of the Commission, had no power to conduct Mr Loiterton's examination. Mr Biber emphasised that his client had no objection to Mr Hammerschlag assisting the inspectors by advising them on matters of law, such as privilege, when they arose. However he had no power to assume the role of "primary questioner" for the purposes of the examination. 6 The inspectors then adjourned in order to consider the matter. They returned shortly afterwards and adjourned the examination until Friday, 14 July. 7 On the afternoon of 12 July 2000 an application was lodged with the Court on behalf of the Commission, together with a Notice of Motion seeking an abridgement for time for service. The application sought a declaration that Mr Loiterton, in refusing to answer the question put to him by Mr Hammerschlag, had without reasonable excuse failed to comply with a requirement under s 19(2)(b) of the Act. The Court was requested to order Mr Loiterton to comply with the requirement. The application was supported by an affidavit of Peter Noel Riordan, annexing all relevant documentary material including a transcript of the proceedings which had taken place that morning during Mr Loiterton's examination. There was a degree of urgency in the case, as the examination of Mr Loiterton and others had been suspended by the Commission pending a resolution of this issue. Accordingly, the matter was made returnable before me on Friday morning, 14 July. On the return date Mr Hammerschlag, who appeared for the Commission on the application, filed an amended application setting out revised orders. The three orders now sought by the Commission, if it succeeds in the application, are as follows: 1 A declaration that a specified member or staff member within the provisions of section 19(2) of the Australian Securities and Investments Commission Act 1989 (Cth) ("the Act") is empowered to require, under section 21(3) of the Act, the person appearing to answer questions relevant to a matter that the Australian Securities and Investments Commission ("the Commission") is investigating put by Counsel on his or her behalf. ("the Requirement") 2 A declaration that the fact that a question is put to an examinee under section 21(3) of the Act by Counsel on behalf of the inspector is not reasonable excuse within the meaning of section 70(1) of the Act for failing to comply with a requirement by the inspector that the question be answered. 3 An order that the respondent comply with the Requirement. 8 Mr Loiterton was represented at the proceedings by Mr Powell of Counsel. He had prepared full written submissions, as had Mr Hammerschlag. Both parties and their representatives are to be commended for presenting high quality and comprehensive submissions at such short notice. 9 Before discussing the issues in the case, it is necessary to describe the statutory background.

Legislative Scheme 10 Mr Loiterton's examination took place under Part 3 of the Act. This Court gains jurisdiction by virtue of s 70, also contained in Part 3. That section provides as follows: "70 Powers of Court where non-compliance with Part (1) This section applies where the Commission is satisfied that a person has, without reasonable excuse, failed to comply with a requirement made under this Part (other than Division 8). (2) The Commission may by writing certify the failure to the Court. (3) If the Commission does so, the Court may inquire into the case and may order the person to comply with the requirement as specified in the order." 11 This section was activated by the inclusion, in Mr Riordan's affidavit, of a certificate under s 70(2), signed by Mr Riordan himself, certifying his satisfaction that Mr Loiterton had, without reasonable excuse, failed to answer a question put to him during his examination, and had thereby failed to comply with a requirement of Part 3 of the Act. 12 Division 2, comprising ss 19 to 27 of the Act, regulates the "Examination of persons". Section 19 is in the following terms: "19 Notice requiring appearance for examination (1) This section applies where the Commission, on reasonable grounds, suspects or believes that a person can give information relevant to a matter that it is investigating, or is to investigate, under Division 1. (2) The Commission may, by written notice in the prescribed form given to the person, require the person; (a) to give to the Commission all reasonable assistance in connection with the investigation; and (b) to appear before a specified member or staff member for examination on oath and to answer questions. (3) A notice given under subsection (2) shall: (a) state the general nature of the matter referred to in subsection (1); and (b) set out the effect of subsection 23(1) and section 68." 13 Sections 21, 22 and 23 provide for the conduct of an examination. These provisions, which are central to the issues in this case, are as follows: "21 Requirement made of examinee (1) The inspector may examine the examinee on oath or affirmation and may, for that purpose: (a) require the examinee to either take an oath or make an affirmation; and (b) administer an oath or affirmation to the examinee. (2) The oath or affirmation to be taken or made by the examinee for the purposes of the examination is an oath or affirmation that the statements that the examinee will make will be true. (3) The inspector may require the examinee to answer a question that is put to the examinee at the examination and is relevant to a matter that the Commission is investigating, or is to investigate, under Division 1. 22 Examination to take place in private (1) The examination shall take place in private and the inspector may give directions about who may be present during it, or during a part of it. (2) A person shall not be present at the examination unless he or she: (a) is the inspector, the examinee or a member; (b) is a staff member approved by the Commission; or (c) is entitled to be present by virtue of: (i) a direction under subsection (1); or (ii) subsection 23(1). Penalty: 10 penalty units or imprisonment for 3 months, or both. 23 Examinee's lawyer may attend (1) The examinee's lawyer may be present at the examination and may, at such times during it as the inspector determines: (a) address the inspector; and (b) examine the examinee; about matters about which the inspector has examined the examinee. (2) If, in the inspector's opinion, a person is trying to obstruct the examination by exercising rights under subsection (1), the inspector may require the person to stop addressing the inspector, or examining the examinee, as the case requires."

The parties' contentions 14 Mr Loiterton, as already indicated, refused to answer questions put to him by Mr Hammerschlag because, it was urged, Mr Hammerschlag, not being a delegate of the Commission, was not empowered to ask questions of an examinee during the course of an examination. That power was reposed by the legislation in the inspector, it was submitted. In this regard, Mr Powell relied on the provisions of s 102 of the Act. That section, so far as relevant here, provides as follows: "102 Delegation (1) The Commission may, by writing under its common seal, delegate to a person all or any of its functions and powers. (2) The Commission shall not, without the Minister's approval, delegate a function or power to a person other than: (a) a member; or (b) a staff member; or (c) a person who, by virtue of the regulations, is a prescribed person in relation to the delegation; or (d) a person appointed by APRA under section 45 of the Australian Prudential Regulation Authority Act 1998; or (e) a member of the staff of the Australian Competition and Consumer Commission referred to in subsection 27(1) of the Trade Practices Act 1974. ……… (6) Where a function or power conferred on the Commission by or under a law (including this Law) and delegated under this section is performed or exercised by the delegate, it shall, for the purposes of that law and this Law, be deemed to have been performed or exercised by the Commission."

15 It is not disputed that Ms Haigh, Mr Dunlop and Mr Riordan, as staff members of the Commission, were the Commission's delegates for the purpose of the examination of Mr Loiterton. However Mr Powell urges that Mr Hammerschlag, not being a person who fell within s 102(2) of the Act, was not and could not have been the Commission's delegate under that section. Mr Powell further relies on s 23(1) of the Act, which allows the examinee's lawyer to be present at an examination and to address the inspector and examine the examinee "about matters about which the inspector has examined the examinee".

16 According to Mr Powell's submissions, Mr Loiterton had no objection to Mr Hammerschlag attending the examination and advising the inspectors from time to time on legal matters such as privilege. This is consistent with the principles laid down in Dunkel v Commissioner of Taxation (1990) 27 FCR 524 ("Dunkel"). That case involved the examination of a solicitor under s 264 of the Income Tax Assessment Act 1936 (Cth) ("the ITA Act"). Before the examination took place the solicitor indicated to the examining officer the likelihood that objection would be taken to some questions on the ground of legal professional privilege. Consequently, the examining officer arranged for counsel to be present during the examination in order to advise him, the examining officer, on matters of privilege as and when they arose. The solicitor objected to this course. First, he said that it was the clear implication from the relevant section of the ITA Act that the examination was to be held before one of the Commissioner's officers, and not before another person such as counsel. This submission was rejected by Sheppard J. Given that counsel was present only for the purpose of advising the examining officer on matters connected with legal professional privilege, it could not be said, his Honour found, that the examination was being conducted "before counsel".

17 The second objection raised by the solicitor in Dunkel was that the examination would be conducted in the presence of counsel, whereas the implication from the relevant section of the ITA Act was that the examination should be carried out in private. It was submitted that the presence of counsel was not something that was reasonably necessary for the conduct of the examination. This submission was also rejected by Sheppard J. His Honour made the following observations:

"It seems to me, particularly bearing in mind that the applicant himself is likely to be represented by counsel, that it is not only something which the Commissioner is entitled to do, but it is also highly desirable in the public interest that the Commissioner's officer be advised by a competent and responsible counsel. It is only in that way that I think there is a chance that the examination may proceed with a sufficient degree of economy and expedition. I therefore reject the submission which has been made, that the presence of counsel is not necessary or reasonable in the circumstances. On the contrary, I think that the presence of counsel may, as I have indicated, facilitate the proper conduct of the examination." 18 In the present case Mr Loiterton, as indicated, would have no objection to Mr Hammerschlag attending the examination and advising the inspectors as occurred in Dunkel. However, Mr Powell urged that the essence of an examination is the asking of questions. If a person other than the inspectors is to ask the questions of an examinee, then the examination is being conducted by that person. This is an effective delegation or abdication of the inspectors' powers, which is not authorised by the Act.

19 Mr Powell relied on the judgment of Merkel J in Ozmanian v Minister for Immigration, Local Government and Ethnic Affairs (1996) 137 ALR 103 and the line of authority referred to by his Honour at page 133 (Bropho v State of Western Australia (1990) 171 CLR 1, Coco v R (1993) 179 CLR 427. These confirm the rule of construction that clear and unambiguous words are required before a statutory provision will be interpreted so as to abolish or significantly modify fundamental rights or principles. In this regard, Mr Powell submitted that sections 19 to 23 clearly affect the rights of examinees. Section 22 provides an explicit legislative safeguard as to the number of people who may be present during an examination. A strict construction of these provisions would preclude an examination being conducted by a person other than an inspector, Mr Powell urged. He pointed out that none of the cases relied upon by the Commission provide authority for the proposition that counsel can participate to such a full degree as Mr Hammerschlag was seeking to do in this case.

20 Mr Hammerschlag pointed out that there is nothing in the Act which requires that the questioning of an examinee be conducted by an inspector. Indeed the provision which enables an inspector to require an examinee to answer questions, namely s 21(3), is pointedly couched in the passive tense. This, Mr Hammerschlag submitted, is a clear indication of the legislature's intention that a person other than an inspector might put questions to an examinee which the latter is required to answer.

21 Mr Hammerschlag's primary submission was that the inspectors, in authorising counsel to ask questions of an examinee, were by no means delegating or abrogating their powers under the Act. The inspectors retained control of the examination in precisely the same way as a Royal Commissioner retains control of the proceedings of a Royal Commission, notwithstanding the active participation of counsel assisting the Commission. If an issue were to arise as to the permissibility of that counsel's questions, then it would be the inspectors, not counsel, who would adjudicate upon the matter. Mr Hammerschlag relied upon authorities such as O'Reilly v The Commissioners of the State Bank of Victoria (1983) 153 CLR 1 as emphasising the distinction between the delegation of a power and the exercise of the power through servants or agents. In this case, he urged, there was no delegation. The inspectors certainly sought to ask questions of Mr Loiterton through himself as counsel. But the inspectors retained responsibility for the overall conduct of the examination. 22 Mr Hammerschlag relied on the comments of Sheppard J in Dunkel in submitting that it is in the interests of an orderly examination for the questioning to be conducted by counsel on behalf of the inspectors. (Mr Hammerschlag was too modest to refer to "competent counsel", but I would take this to be the thrust of his submission). He pointed out that there were a number of absurdities which could arise if the respondent's submissions were to be accepted. If counsel's role was to be a limited one, where would the dividing line lie? Would it be possible for counsel to suggest to the inspector, orally or in writing, the questions which should be asked? Mr Loiterton's solicitor had indicated to the inspectors that he would have no objection to Mr Hammerschlag asking "half a dozen questions" throughout the proceedings. His objection was to Mr Hammerschlag being the primary questioner. But at what point does one assume the role of primary questioner?

23 Finally Mr Hammerschlag submitted that it is within the power of an inspector to control all aspects of the examination under Part 3 of the Act. This must include authorising counsel to ask questions on the inspector's behalf.

Discussion 24 Mr Hammerschlag's submissions are, in my view, correct. In procuring the services of counsel to ask questions of an examinee, an inspector is by no means delegating his or her functions under the Act. In my view the position is, as Mr Hammerschlag submits, very similar to that of a Royal Commission or a Coroner's Inquiry. Counsel assisting the Commission or Inquiry will frequently be the "primary questioner" at hearings conducted for the purpose of the Commission or Inquiry. But the Commissioner or Coroner retains control over the proceedings. Any objections to the admissibility of questions put by counsel assisting will, it goes without saying, be resolved by the Royal Commissioner or Coroner. The presence of counsel to ask questions by no means involves an abdication of responsibility for the conduct of the proceedings. To the contrary, it enables the proceedings to be conducted in an efficient and orderly manner. 25 I return to the circumstances of this case. No question arose before the inspectors as to the admissibility of any of Mr Hammerschlag's questions. Mr Loiterton refused to answer Mr Hammerschlag's first substantive question because, he suggested, Mr Hammerschlag had no authority to ask it. But it must be assumed that, had this objection not been made, and had the proceedings continued with Mr Hammerschlag acting as "primary questioner", any subsequent objections to particular questions, on the ground of relevance, privilege or otherwise, would have been resolved by the inspectors. Had Mr Hammerschlag attempted to resolve them himself, this would have involved a clear abdication by the inspectors of their statutory functions. However, there is no basis for assuming that this would have occurred. To the contrary, all of Mr Hammerschlag's submissions were premised upon the assumption that the inspectors, rather than himself, would adjudicate upon the permissibility of individual questions. 26 There was therefore no question of the inspectors or the Commission delegating their powers to Mr Hammerschlag. He was the inspectors' agent for a limited purpose only, namely to ask appropriate questions of Mr Loiterton. The appropriateness of the questions was for the inspectors to determine. 27 In my view, so long as the inspector retains the power to specify which questions an examinee will be required to answer under s 21(3) of the Act, then the inspector retains control over the proceedings in a relevant sense. It matters not that the question itself is put to the examinee not by the inspector, but by counsel acting on his or her behalf. 28 It follows that my overall finding is in favour of the applicant. Mr Powell agreed that, in this event, the orders sought by the Commission would be appropriate. I accordingly make the following orders: 1. A declaration that a specified member or staff member within the provisions of section 19(2) of the Australian Securities and Investments Commission Act 1989 (Cth) ("the Act") is empowered to require, under section 21(3) of the Act, the person appearing to answer questions relevant to a matter that the Australian Securities and Investments Commission ("the Commission") is investigating put by Counsel on his or her behalf. ("the Requirement") 2. A declaration that the fact that a question is put to an examinee under section 21(3) of the Act by Counsel on behalf of the inspector is not reasonable excuse within the meaning of section 70(1) of the Act for failing to comply with a requirement by the inspector that the question be answered. 3. An order that the respondent comply with the Requirement. 4. The respondent is to pay the applicant's costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mathews.

Australian Securities and Investments Commission Act 1989(Cth)ss 13(1), 19(2)(b), 21(3), 22, 23(1), 70, 102

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