Australian Securities & Investments Commission v Marshall Bell Hawkins Limited

REASONS FOR JUDGMENT 1 Strategic Project Marketing Ltd ("SPM") holds a Dealer's Licence, which was issued on 18 August 1998 pursuant to s 784 of the Corporations Law. SPM, which is a company under the control of Tony Marshall Bell ("Bell"), is a defendant in the present proceeding together with Bell and three other companies under his control, Marshall Bell Hawkins Limited ("MBH"), Private Equity Asset Management Pty Ltd ("PEAM") and Spinofrere Pty Ltd ("Spinofrere"). 2 In this proceeding the Australian Securities and Investments Commission ("ASIC") is seeking orders pursuant to the Corporations Act 2001 (Cth) ("the Corporations Act") for the winding up of each of the defendant corporations on the ground that it is just and equitable to do so. In the alternative, ASIC is seeking the appointment of a receiver and manager of those corporations. ASIC is also seeking injunctive relief against each of the defendants. 3 On the application of ASIC, on 6 December 2002 I granted certain injunctive relief against Bell, MBH and SPM and made an interim order for the appointment of a receiver and manager of the property of PEAM and Spinofrere: see Australians Securities and Investments Commission v Marshall Bell Hawkins Ltd (2002) 43 ACSR 340 ("ASIC v Marshall Bell Hawkins"). In the course of my reasons I made critical observations, on a prima facie case basis, in relation to the advice given to investors by MBH, SPM and Bell concerning certain high risk investments in securities and loans recommended by MBH, SPM and Bell. I also expressed concern about the amount and inadequate disclosure of commissions and marketing fees received by some of the defendants in respect of the investments recommended by MBH, SPM and Bell. 4 As I explained in ASIC v Marshall Bell Hawkins (at 342 [7]) the proceeding arose out of an investigation carried out by ASIC under s 13(1) of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") in respect of suspected contraventions by the defendants of the Corporations Act and of the Corporations Law in relation to financial services provided to investors by SPM and MBH and recommendations made by Bell to clients to invest in securities in Spinofrere, PEAM, and certain other companies and trusts. In the course of the investigation ASIC received approximately 40 boxes of documents from the Australian Federal Police ("the AFP"), which had been obtained by AFP officers as a result of a search warrant executed by them under s 3E of the Crimes Act 1914 (Cth) ("the Crimes Act"). The AFP officers were entitled to provide the documents to ASIC pursuant to s 3F(5) of the Crimes Act, which authorises an executing officer to make things obtained pursuant to a warrant available to officers of certain other agencies, which include ASIC: "if it is necessary to do so for the purpose of investigating or prosecuting an offence to which the things relate". 5 As a result of an order made by consent in the present proceeding all of the documents and computer records seized under the search warrant have been treated as discovered documents of the defendants. ASIC has applied to the Court for leave to use the discovered documents for the purpose of exercising its powers under the Corporations Law, the Corporations Act and the ASIC Act, including the power to conduct a hearing under Div 6 of Pt 3 of the ASIC Act, in order to determine whether the Dealer's Licence granted to SPM should be revoked under s 826 of the Corporations Law, which continues to apply to the licence (see Part 10.2 of the Corporations Act). ASIC claims that it is in the public interest that it be permitted to have access to the documents obtained from the AFP, and discovered by the defendants, for the purpose of exercising the statutory powers referred to above. 6 The problem confronting ASIC is that, because it is only entitled to use the documents and computer records provided by the AFP pursuant to s 3F(5) of the Crimes Act "for the purpose of investigating or prosecuting an offence to which the things relate" it is under a duty not to use the documents for any other purpose: see Williams v Keelty (2001) 111 FCR 175 at 224 [233] per Hely J and Johns v Australian Securities Commission (1993) 178 CLR 408 at 423 per Brennan J and at 435-436 per Dawson J. ASIC accepts, quite correctly in my view, that use of the documents for the purposes of an inquiry in relation to a revocation of a licence under s 826 of the Corporations Law is not a use of the documents for the purpose of investigating or prosecuting an offence. 7 ASIC is also under a duty not to use the discovered documents of the defendants, being the documents provided to it by the AFP, other than for the proper conduct of the present proceeding. The duty arises because ASIC is taken to have given an implied undertaking to the Court not to use the discovered documents, or information derived from the discovered documents, other than for the proper conduct of the proceeding: see Harman v Secretary of State for the Home Department [1983] 1 AC 280 ("Harman") at 304-305, 307-308 and 326 and Crest Homes Plc v Marks [1987] AC 829 at 854. Thus, ASIC is not entitled to have access to the discovered documents for the purpose of exercising its statutory powers in relation to SPM's Dealer's Licence unless the Court has released it from the implied undertaking. ASIC has now made an application to the Court to be released from that undertaking. 8 In Taylor v Director of the Serious Fraud Office [1999] 2 AC 177 at 210 Lord Hoffmann made the following observations concerning the policy underlying the implied undertaking: "I am not sure that it is right to treat the implied undertaking in civil proceedings merely as an inducement to a litigant to disclose documents which he might otherwise have been inclined to conceal. I think that it is more a matter of justice and fairness, to ensure that his privacy and confidentiality are not invaded more than is absolutely necessary for the purposes of justice." 9 The implied undertaking can, in appropriate circumstances, be released or modified by the Court. However, as was observed by Brennan J in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 ("Esso Australia") at 37: "That dispensing power is not freely exercised, but it will be exercised when special circumstances appear. In the Federal Court, special circumstances have been held to exist where 'there is a special feature of the case which affords a reason for modifying or releasing the undertaking and [the feature] is not usually present'. It is unnecessary to consider whether the dispensing power should be so broadly defined. It is relevant to note only that the obligation enforceable as an undertaking to the court in the case of a curial order is not unqualified." [citations omitted] 10 The passage quoted by Brennan J appears in the reasons for judgment of Wilcox J in Springfield Nominees Pty Limited v Bridgelands Securities Limited (1992) 38 FCR 217 ("Springfield Nominees") at 225 where his Honour, in the course of discussing the requirement for "special circumstances" to be established before the Court would exercise its discretion to modify or release the undertaking, stated: "For 'special circumstances' to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding." 11 The observations of Wilcox J in relation to "special circumstances" have been applied on a number of occasions in the Court: see Australian Competition and Consumer Commission v INFO4PC.COM Pty Ltd [2001] FCA 258 at [6]-[7] and the cases there cited. 12 Generally, a party applying for the modification or release of the undertaking should: · specify the documents in respect of which the modification or release is sought; · specify the purpose for which the modification or release is sought; and · satisfy the Court that the special circumstances relied upon by the party warrant or justify the modification or release sought. 13 The requirements of specificity in respect of the documents to be used and the purpose for which they are to be used is appropriate because the implied undertaking should only be modified or released to the extent that it is in the interests of the administration of justice or in the public interest to do so: see Springfield Nominees at 225 and Moage Limited (in liq) v Jagelman (2002) 43 ACSR 173 ("Moage") at 176. Thus, the modification or release should be no greater than is necessary or appropriate to meet the interests of the administration of justice or the public interest. Further, in determining whether to exercise its discretion to grant the modification or release sought, it will usually be necessary for the Court to identify with precision the documents to be released and the purpose of that release. 14 Of course, once documents have been read in open court they lose their confidentiality and, as a consequence, the protection of the implied undertaking: see Harman at 306, 319 and 326 and Esso Australia at 32-33. Thus, it is accepted by the parties that ASIC is entitled to use the affidavits and exhibits relied upon by the parties in the earlier interlocutory application in the present proceeding. However, ASIC has also applied to the Court to release it from the implied undertaking in respect of future affidavits and all of the discovered documents to enable it to exercise its powers, and to make decisions, concerning the Dealer's Licence held by SPM. Those powers and decisions are protective in nature as the immediate and direct legal effect of the revocation of the licence is not to impose a penalty on the person concerned but, rather, is preventive because revoking the licence will remove a perceived threat to the public interest and to the public confidence in the securities and futures industry: see Australian Securities Commission v Kippe (1996) 67 FCR 499 at 508. Plainly, there would appear to be a significant public interest in releasing discovered documents to enable ASIC to pursue those objectives. 15 In an analogous context the courts have recognised that there can be a public interest in favour of disclosure in respect of information that is sought in respect of a prosecution, which can override the public interest in the administration of justice in the preservation of the confidentiality of discovered documents: see Rank Film Distributors Ltd v Video Information Centre (A Firm) [1982] AC 380 at 447; Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476 at 486-487 and 490-491; cf Moage at 176-177. 16 There can be little doubt that the public interest in favour of disclosure of information that is required to enable ASIC to exercise its protective powers in relation to SPM's Dealer's Licence can override the public interest in preserving the confidentiality of the relevant discovered documents. However, before addressing that issue it is necessary to examine more closely the release that ASIC seeks and the evidence upon which it has relied for that release. The relevant orders ASIC seeks are in the following terms: "3. That ASIC be released from its implied undertaking not to make use of (other than for the purposes of this proceeding) the documents referred to in Order 4 hereof, insofar as they are relevant to exercising its administrative powers under the Corporations Act 2001 (Cth), the old Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) in relation to the Securities Dealer's Licence held by Strategic Project Marketing Ltd (ACN 081 043 521) and Proper Authority Holders appointed there under. 4. That pursuant to Order 3 hereof, ASIC is released from its implied undertaking in relation to the following documents: (a) all affidavit material already filed by the Defendants in this proceeding and all future affidavit material that is filed by the Defendants in this proceeding; (b) all of the documents and computer records seized by officers of ASIC under search warrant on 19 September 2002 ('the search warrant documents') other than documents over which legal professional privilege has been and is still claimed by the Defendants, these search warrant documents having been discovered to ASIC by the Defendants pursuant to Orders of the Court made on 12 November 2002. (c) All affidavit material filed by and on behalf of the Plaintiff in the proceeding and any future affidavit material that is filed by the Plaintiff in this proceeding; (d) All affidavit material and reports filed by the Receiver and Manager of Spinofrere Pty Ltd and Private Equity Asset Management Pty Ltd, Gregory John Keith, in this proceeding and any future affidavit material and reports so filed in this proceeding; (e) Any and all other material discovered to ASIC during the course of this proceeding." 17 It is common ground between the parties that a release from the implied undertaking is not required in respect of the material set out in paras 4(a), (c) and (d) of the order insofar as the material is constituted by the documents already filed in the proceeding. I do not regard the application to be released from the undertaking in respect of "future affidavit material" as appropriate as that material and its content, and the use to which it may be put, is not capable of identification. Thus, the real issue relates to the release sought in respect of the discovered documents. 18 In support of its application for that release ASIC has relied upon an affidavit sworn by a solicitor employed by ASIC. In that affidavit the solicitor merely outlines the procedures that are usually followed by ASIC in determining whether a Dealer's Licence should be revoked. It is unnecessary to outline the detail of those procedures other than to observe that, in the first instance, a decision is to be made as to whether to convene the hearing required to be conducted prior to the revocation of the Dealer's Licence and, if such a hearing is convened, decisions need to be made concerning the proper conduct of that hearing. Although ASIC submitted that the discovered documents to which it was seeking access were relevant to all of the decisions it may be required to make in relation to SPM's Dealer's Licence, there is no evidence by any officer of ASIC to that effect. 19 The defendants relied upon an affidavit by their solicitor which claimed that many of the discovered documents could not be relevant to the revocation of SPM's Dealer's Licence. The defendants also relied on their solicitor's correspondence with ASIC, which pointed to ASIC's failure to specify the documents it claims are relevant. In the course of the hearing ASIC sought to deal with that issue by claiming that it would be a waste of public funds for its officers to trawl through about 40 boxes of documents without knowing whether the Court was prepared to release it from its implied undertaking. In any event, ASIC contended that in order "to obtain a proper and complete picture of the investments made by clients and … any breaches of the law which may have occurred, access to the relevant documents of all companies and entities within Bell's Group is necessary". ASIC's first fall-back position was that if the release is not to be a blanket release: "the appropriate way to proceed is for the Court to release [ASIC] from the implied undertaking on condition that [ASIC], prior to issuing any notice of administrative hearing, provide to the solicitors for the Defendants a list of the documents which are to be used in connection with the licensing enquiry." 20 Finally, ASIC stated that if it were released from the undertaking it would notify the defendants of the documents it regarded as relevant in order to enable them to challenge the relevance of the documents before the Court prior to their use. 21 The initial difficulty confronting ASIC is that the discovered documents are not the only documents available to ASIC to enable it to decide how it might proceed in respect of SPM's Dealer's Licence. As was pointed out earlier in these reasons, it is common ground that ASIC is entitled to use all of the affidavits filed in the proceeding to date. Further, it is also common ground that the reports of the receiver and manager made pursuant to orders of the Court may also be relied upon by ASIC. 22 It was on the basis of the affidavits to which ASIC is entitled to have access to that I made a number of critical observations about the activities of Bell and his companies including SPM (see for example 346 [22]-[24], 347 [27], 348 [34] and 349 [39]-[40] of my reasons for judgment in ASIC v Marshall Bell Hawkins). There is no evidence that the documents and information upon which I relied at the interlocutory hearing and the subsequent reports of the receiver and manager are not sufficient to enable ASIC to make a decision as to how it wishes to proceed and, in particular, as to whether to conduct a hearing for the purpose of determining whether the Dealer's Licence of SPM should be revoked. Further, as was pointed out by counsel for the defendants, if and when such a hearing has been convened the ASIC officer delegated with the responsibility of conducting the hearing would then be entitled to exercise ASIC's statutory powers under Pt 3 of the ASIC Act in order to obtain documents that the officer regards as relevant to the hearing. Thus, whether a release from the undertaking is necessary for the purposes of any hearing is a matter of speculation at this stage. That must be so as it is unknown at this point whether a hearing will be convened and, if so, how the matter would proceed thereafter if the hearing is convened. 23 ASIC has approached the present matter on the basis that all of the discovered documents are likely to be relevant to a decision whether to convene a hearing in relation to SPM's Dealer's Licence and, if a hearing is convened, to the conduct of that hearing. However, the statement that all of the discovered documents are relevant for both purposes is not supported by evidence. Further, I do not accept that the information ASIC requires for it to make a decision whether to conduct a hearing is co-extensive with the information it may require for the proper conduct of the hearing. ASIC has, incorrectly in my view, conflated the two purposes in the present case. I say it has done so incorrectly because I regard the relevant purpose for which the release can properly be sought at this stage as the decision whether to conduct a hearing. As explained above what happens thereafter is a matter of speculation. 24 In the circumstances outlined above ASIC has not satisfied me that it should be given access at this stage to all of the discovered documents for the purpose of determining whether to decide to convene a hearing in relation to SPM's Dealer's Licence. In particular, I am not satisfied that all of those documents are needed for, or are relevant to, any such decision. As explained above, there is no evidence before me that the material that is presently available to ASIC is insufficient for the making of that decision. Indeed, there is no evidence that any officer of ASIC has turned his or her mind to the question of what information is necessary or appropriate to enable that decision to be made. The most that can be said is that a significant number of the discovered documents might be relevant to the exercise by ASIC of its statutory powers in relation to SPM's Dealer's Licence, but whether they are relevant to, or required for, the proper exercise of those powers will depend upon the issues raised concerning the Dealer's Licence which, as I have already stated, are a matter of speculation. 25 I am also not satisfied that ASIC's fall-back position of deferring the question of relevance is an appropriate way to proceed. It is incumbent upon ASIC to specify the documents in respect of which the relief is sought and the precise purpose for the release. Both matters are relevant to whether the special circumstances relied upon by ASIC warrant or justify the release it seeks. Although I am prepared to accept that there are special circumstances that are likely to warrant some modification of or release from the implied undertaking, the modification or release should only be in respect of the discovered documents that are demonstrated to be relevant to or required for a decision in respect of the convening of a hearing concerning SPM's Dealer's Licence. ASIC has not satisfied me of the relevance of or need to access all of the discovered documents for that purpose or that it has been hindered or impeded in making any such decision by not having access to those documents. 26 It is also incumbent upon ASIC to adduce some evidence as to its purpose, rather than to make assertions as to that purpose. While I accept ASIC's bona fides in relation to its intention to consider whether a hearing should be convened, its failure to address the issue of purpose in its evidence, and its reference to purpose in its submissions in the most general terms, has required the defendants and the Court to speculate on the documents that might be relevant. For the reasons set out above I do not regard that approach as appropriate. It follows from the foregoing that I am not satisfied that the special circumstances relied upon by ASIC concerning a "possible" hearing in relation to SPM's Dealer's Licence warrant or justify the blanket release sought. Put another way, ASIC has not established that the release it seeks is in the interests of the administration of justice or in the public interest. 27 I have considered whether I should adjourn the present application to enable ASIC to file further evidence concerning the documents it is seeking and the purpose for which it is seeking those documents. However, after careful consideration, I do not regard that as the appropriate course to follow. ASIC was well aware of the defendants' complaints concerning its failure to specify the relevant documents it was seeking yet it elected to contest the application on the basis of a blanket release. In addition, ASIC has not applied for an adjournment to enable it to file further material. In these circumstances there is not a sufficient reason to adjourn the application. However, I will provide that the dismissal of ASIC's motion is to be without prejudice as to its right to make any further application. Thus, ASIC will not be precluded from making a further application if, and when, that is appropriate. 28 For the foregoing reasons I have concluded that ASIC's application to be released from its implied undertaking should be dismissed with 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 Merkel.