Australian Securities & Investments Commission v Pappas

REASONS FOR JUDGMENT 1 On 20 December 2006 I published my reasons for concluding that the defendant should be found guilty on three charges of contempt (see Australian Securities & Investments Commission v Pappas [2006] FCA 1785]). The present reasons should be understood in the light of and as an extension of those reasons. On 20 December 2006, I gave directions for the parties to make submissions on the appropriate penalty for contempt. I have now received written submissions on behalf of the Australian Securities & Investments Commission (the Commission) and the defendant and have heard oral submissions on behalf of both parties on that question. 2 Ordinarily, subject to satisfaction of certain procedural requirements, the Court has power to impose a term of imprisonment, to impose a fine and to make costs orders as punishment for contempt. The principles that are relevant to the question of penalty in a case such as the present are as follows: · the seriousness of the contempt; · whether the contemnor was aware of the consequences of contempt; · the actual or potential consequences of the contempt; · the reason or motive for the contempt; · whether the contemnor has received or will receive a benefit from the contempt; · whether genuine contrition has been expressed by the contemnor; · the character and antecedents of the contemnor; · what punishment is required to deter the contemnor in particular and others of a like mind generally from similar disobedience to orders of the Court. The defendant did not quarrel with those principles as being relevant to the assessment of penalty in the present proceeding. 3 However, the defendant points to a failure to comply with the Rules of the Federal Court concerning enforcement of orders of the Court by committal. He says that, having regard to failure to comply with the Rules in connection with the Court's order of 16 September 2005, the punishment, at least in relation to the first two charges, should not include imprisonment. It is, therefore, desirable to say something about the relevant provisions of the Rules. 4 Order 37 Rule 2(1) of the Federal Court Rules relevantly provides that, subject to the Rules, an order of the Court shall not be enforced by committal unless the order, or a certified or office copy of the order, is served personally on the person bound by it. Rule 2(3) relevantly provides that an order, or a certified or office copy of an order, served under Rule 2 must bear a notice that names the person concerned and states that the person is liable to imprisonment if, where the order requires the person bound to do an act within a specified time, the person bound refuses or neglects to do the act within that time. Under rule 2(6) the Court may dispense with service under Rule 2(1). 5 On 16 September 2005 the Court ordered that the defendant appear before named officers of the Commission on 28 September 2005 at the Commission's Sydney office for examination on oath and provide the Commission all reasonable assistance with its investigation, pursuant to notices given by the Commission under s 19(2) of the Australian Securities and Investment Commission Act 2001 (Cth)(the ASIC Act). While a copy of that order was served on the defendant, the copy of the order that was served did not contain a notice that complied with rule 2(3). The defendant says that, therefore, the order of 16 September 2005 should not be enforced by committal to prison. 6 The Commission answers that contention by asking the Court to waive compliance with rule 2(3). In addition, the Commission contends that, in relation to the second charge, Rule 2(3) has no application. The second charge is that the defendant failed to provide the Commission all reasonable assistance with its investigation. The Commission points out that Rule 2(3) relates only to an order that requires the person bound to do an act within a specified time and that there was no temporal limitation to that requirement for the defendant to provide assistance. Accordingly, it says, there was no requirement for a notice that the defendant was liable to imprisonment if he neglected to provide reasonable assistance. The Commission's contention concerning the second charge raises questions concerning the effect of s 70 of the ASIC Act and the Court's order of 16 September 2005. 7 Section 19(2) of the ASIC Act provides that the Commission may require a person: · to give to the Commission all reasonable assistance in connection with an investigation of the Commission; and · to appear before a specified member or staff member for examination on oath and to answer questions. Under s 70, where the Commission is satisfied that a person has failed to comply with a requirement made under s 19, the Commission may certify the failure to the Court and the Court may, having enquired into the case, order the person to "comply with the requirement as specified in the order". 8 The terms of the order of 16 September 2005 were as follows: "The defendant appear before [specified officers of the Commission] at 9 am on 28 September 2005 at [the Commission's] Sydney office, for examination on oath, and provide [the Commission] all reasonable assistance with its investigation, pursuant to a requirement made under s 19(2) of [the ASIC Act]." As I found earlier, the defendant failed to attend at the Commission's office on 28 September 2005. A fortiori, he gave the Commission no assistance on that day in connection with its investigation. Accordingly, there can be no doubt that the defendant failed to comply with the order of 16 September 2005. 9 The Commission's contention, however, is that the order continued to be operative such that, notwithstanding the failure to attend on 28 September 2005, the order continued to require the defendant to provide the Commission all reasonable assistance with its investigation, pursuant to the requirement that had previously been made by the Commission under s 19 of the ASIC Act. Notwithstanding that, in my reasons of 20 December 2006, I concluded that the defendant should be found guilty of a charge of contempt for failing to provide all reasonable assistance to the Commission at a hearing on 3 February 2006, I do not consider, on reflection, that the defendant should be punished separately for any failure to provide reasonable assistance on that occasion. 10 When the defendant appeared before the Court on 9 December 2005, to answer the charge of having failed to comply with the order of 16 September 2005, I informed the defendant that he must realise that he was in very serious trouble and that he must take the matter seriously in future. The Commission indicated at that stage that it was amenable to conducting an examination of the defendant at a mutually convenient time in January 2006. I therefore fixed the contempt charge for directions on 3 March 2006 and informed the defendant that, if, in the meantime, he had attended an examination at a time that was suitable, that may have a very significant bearing on what would happen with the contempt charge. 11 That was the context in which the defendant, in fact, attended at the Commission's Sydney office on 3 February 2006, where he was examined by three officers of the Commission. I do not regard the attendance at such an examination as a further requirement of the order of 16 September 2005. Rather, it should fairly be treated as an attempt on the part of the defendant to assuage the affront to the Court constituted by his failure to comply with the order of 16 September 2005 in the first place. In effect, the defendant was belatedly attempting to do what he should have done on 28 September 2005. In those circumstances, the defendant's failure to provide the Commission with reasonable assistance on 3 February 2006 should not fairly be treated as a second contempt. Rather, it was an ineffective purging of the contempt that had previously been committed. The failure to provide assistance on 3 February 2006 should be taken into account for the purposes of assessing the penalty for the first charge but should not be separately penalised. 12 It follows, therefore, that I should consider the penalty for the first charge on the basis that the copy of the Court's order served on the defendant did not comply with Order 37 rule 2(3). The Commission has not adduced any evidence as to the circumstances that led to the omission of the statement required by rule 2(3). Nevertheless, the Commission seeks a waiver of compliance with that rule under either Order 37 rule 2(6) or Order 1 rule 8. 13 In response to the request for a waiver, the defendant points to the fact that, apart from his failure to attend the examination on 28 September 2005, on every other occasion since the commencement of the proceeding he has attended Court or examinations by officers of the Commission. While he gave no evidence that he did not know that failure to comply with the Court's order of 16 September 2005 could lead to committal, I do not consider that that is relevant. I am not persuaded that any basis has been advanced on behalf of the Commission for waiver of the requirement to comply with Order 37 rule 2(3). It follows that committal is not an appropriate penalty in relation to the first charge or, in so far as it can be supported, the second charge. 14 The position is different in relation to the conclusion that I have reached concerning a third charge. By the time that the defendant gave undertakings to the Court on 25 May 2006, it is clear enough that he was aware that one of the possible consequences of contempt of Court was committal. I also informed him on that occasion that if he did not comply with his undertaking, the Commission may bring another charge of contempt against him. 15 Clearly, failure to comply with an order of the Court and failure to comply with an undertaking given to the Court are serious matters and must be dealt with on that basis. I have found that both failures were contumacious in the circumstances that I described in my reasons of 20 December 2006. In ordinary circumstances, a knowing and contumacious failure to comply with an order of the Court may well attract punishment by way of imprisonment. However, I have concluded that that punishment is not open in relation to the first and second charges. In relation to the third charge, it is relevant to have regard to the examination that in fact took place pursuant to the undertaking given to the Court. 16 The defendant undertook on 25 May 2006 that he would appear before named officers of the Commission on 6 June 2006 at the Commission's Sydney office, for examination on oath on enumerated topics and that he would provide the Commission with all reasonable assistance with its investigation of those topics. As I indicated in my reasons of 20 December 2006, there were eight topics enumerated. The defendant did in fact attend the examination on 6 June 2006 and was examined over some period of time. The transcript of the examination runs to some 113 pages. The third charge relates to a failure to provide reasonable assistance in connection with the investigation of only two of the enumerated topics. 17 In support of the original charge of contempt, the Commission relied on an affidavit of Mr Paul Raymond Rowland, sworn 10 November 2005. Mr Rowland is an investigator with the Commission. He said that the relevant investigation is into suspected contravention of provisions of the Corporations Act in relation to dealings by the defendant in securities of Computershare Limited and Ten Network Holdings Limited and of provisions of the Crimes Act 1900 (NSW) in relation to credit obtained by the defendant for the purposes of funding those dealings. The Commission commenced the investigation on 15 April 2005 and subsequently decided to examine the defendant on oath pursuant to s 19 of the ASIC Act. Mr Rowland said that the defendant is an integral part of the investigation. 18 Specifically, Mr Rowland said that he believed that it was necessary to examine the defendant in order to determine: · whether he personally placed orders to buy and sell the shares in question on accounts opened in his name, in the period 1 January 2005 to 31 January 2005; · what motivated the pattern of trading engaged in by the defendant in that period in respect of dealings in the shares in question; and · the truth or falsity of certain representations made by the defendant in the course of obtaining a margin load to fund securities trading undertaken by him in that period. The defendant contends that matters that were the subject of the third charge were only tangentially relevant to those matters enumerated by Mr Rowland in his affidavit. In any event, however, the defendant points to the fact that no complaint was made in relation to six of the eight enumerated topics. 19 Thus, in relation to the examination on 3 February 2006, it seems to follow that the failure to provide responsive and useful answers on that occasion was overcome, to some extent, by the answers given in the examination on 6 June 2006. That is to say, by the end of that examination, there were only the two enumerated topics in respect of which the Commission made any complaint. 20 The undertaking given to the Court on 25 May 2006 to attend a further examination was given by the defendant at a time when he was not represented. In effect, the undertaking was given as a condition of the adjournment that he sought on 25 May 2006. I consider that the undertaking should be treated in much the same way as the indication given by the defendant on 9 December 2005 that he would attend a further examination in January 2006. That is to say, it was by way of further endeavour to assuage the affront to the Court for his failure to comply with the Court's order of 16 September 2005. 21 I consider that, in assessing penalty, there should be a single penalty fixed in relation to the whole of the defendant's conduct. To the extent that he failed to provide the Commission reasonable assistance in connection with its investigation on 3 February 2006 and 6 June 2006, that has relevance as indicative of the extent to which the defendant was genuinely contrite in respect of his failure to comply with the Court's order of 16 September 2005. While it has taken several attempts and the Commission is still not entirely satisfied with the defendant's responses, he has to the extent, limited though it may be, that he has cooperated in attending further examinations, demonstrated some contrition. 22 Certainly, the defendant pleaded not guilty to the first charge. That is a factor that I consider to be relevant in assessing the degree of any contrition that he genuinely demonstrates. On the other hand, in the course of cross-examination of the defendant during the hearing of the contempt charges, the defendant apologised to the Court on three separate occasions. In addition, the defendant, at one of the times when he was represented, undertook to attend a further examination if required by the Commission. The Commission has not taken up that offer. Nevertheless, I consider the offer is indicative of a degree of contrition on the part of the defendant. 23 In considering penalty, it is necessary to have regard to the question of deterrence. As I have said, failure to comply with an order of the Court is a very serious matter. Any penalty that is imposed should reflect the seriousness of the matter and should be sufficient to deter not only the defendant from repeating a contempt but also to deter others. The Commission is furnished with very significant powers to examine individuals in the interests of the community. Members of the public should understand that failure to comply with orders of the Court requiring compliance with the Commission's requirements in connection with investigation will not be treated lightly. 24 However, in the present case, given that imprisonment is not an available penalty for failing to comply with the Court's order of 16 September 2005, a further complication arises from the fact the defendant is quite impecunious. The defendant is a bankrupt. It seems likely that he has no assets of any moment whatsoever. The only evidence of employment is that of casual unskilled employment in a café producing no more than several hundreds of dollars per week. There must be considerable doubt, therefore, as to whether any monetary penalty would be paid by the defendant. Nevertheless, that appears to be the only course open. 25 In all the circumstances, I consider that the appropriate penalty is a fine of $8,000. In addition, the defendant should pay all reasonable costs of the Commission reasonably incurred in connection with the charges of contempt. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.