Birdseye v Companies Auditors & Liquidators Disciplinary Board

Federal Court of Australia|2002-03-19|Before: Hill J

REASONS FOR JUDGMENT 1 The applicant, Mr Birdseye, applies to the Court by way of an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") which affirmed a decision of the Companies Auditors and Liquidators Disciplinary Board ("the Board") that his registration as an Auditor under the Corporation Law ("the Law") be cancelled. The appeal is in the original jurisdiction of the Court and is an appeal on, that is to say, limited to a question of law. 2 The facts were not in dispute in the Tribunal. 3 On 9 November 1998, a sequestration order was made against Mr Birdseye's estate and in consequence he became a bankrupt. He remained a bankrupt until discharged by operation of the Bankruptcy Act 1966 (Cth) in January 2002, that is to say after the decision of the Tribunal but before the present application was heard. He advised the Australian Securities and Investment Commission (ASIC) of his bankruptcy and that he intended to make an application to the Supreme Court of South Australia or this Court under s 229(1) of the Law, as then enacted, for leave to manage a corporation (or class of corporations). ASIC applied to the Board pursuant to s 1292(7) of the Law for cancellation of Mr Birdseye's registration as an Auditor on the ground that he was disqualified from managing corporations by virtue of his bankruptcy. Mr Birdseye reiterated his intention to apply to the Court under s 229(1) and when a hearing of the Board was scheduled sought an adjournment on the basis of his intended application. 4 In fact, the hearing before the Board took place on 3 May 2001, at which time no application to the Court had been filed. It was not until 1 June 2001 that an application to the Court was made under s 206G of the Law, which, as a result of amendments to the Law effective on 13 March 2000, replaced, for present purposes, s 229(1). It is not suggested that the amendments to the Law effective on 13 March 2000 had any substantive effect on the circumstances of the present case. For present purposes I propose to set out only the relevant provisions as amended. The provisions of the Law, prior to the amendment may be found in the decision of the Tribunal appealed from. 5 The Board refused the application for adjournment and ordered that Mr Birdseye's registration as an auditor be cancelled. Mr Birdseye then applied to the Tribunal for review of this decision.

Section 1292(7) in its amended form as relevant in the present case, provided: 6 "The Board shall, if it is satisfied… (a) that the person is disqualified from managing corporations under Part 2D.6; or (b) that the person is incapable of, because of mental infirmity, of managing his or her affairs; by order, cancel each prescribed registration of the person." 7 By virtue of s 1292(8) of the law registration as an auditor is a "prescribed registration". 8 Part 2D.6 is headed "Disqualification from managing corporations." Relevantly it provides that an undischarged bankrupt under the laws of Australia, its external territories or another country is automatically disqualified from managing corporations: s 206B(1). A person who is disqualified from managing a corporation under Part 2D.6 commits an offence if he or she takes certain steps in relation to the business or management of a corporation: s 206A(1). It is a defence, however, if the person had permission to manage a corporation under, inter alia, s 206G and his or her conduct was within the terms of that permission. That section provides for an application to be made to the Court for permission to manage a corporation or a class of corporations. It is conceded by counsel for Mr Birdseye that s 296G does not authorise the Court to give permission to manage corporations generally. Application to the Court is limited to permission to manage a particular corporation or particular classes of corporations. 9 Section 1292(7) contrasts with s 1292(1) which empowers the Board, if it is satisfied, inter alia, that a person has contravened s 1288 of the Law, or has ceased to be a resident of Australia, has failed to carry out or perform adequately and properly the duties of an auditor or is otherwise not a fit and proper person to remain registered as an auditor to deal with that person in one or more of a number of ways, including admonition or reprimand or requiring an undertaking. Failure to give an undertaking or failing to comply with an undertaking may lead the Board in its discretion to cancel or suspend the person's registration as an auditor.

The Tribunal's decision. 10 Because the Tribunal had before it Mr Birdseye's application for an adjournment it considered first the question whether the success in the application to the Court might bring any change in Mr Birdseye's entitlement to manage a corporation. If it could not, then clearly there was no point in the Tribunal granting an adjournment. 11 The Tribunal expressed the view, based largely upon the decision of Davies J in Freeman v Secretary, Department of Social Security (1988) 19 FCR 342 that the role of the tribunal in the present case was to consider the question before it at the time the registration was cancelled by the board and not by reference to evidence obtained thereafter, for example, evidence as to the result of the application to the Court. According to the Tribunal the task of the Tribunal was to consider whether or not the Board's decision was correctly arrived at at the time that decision was made or, in other words, to determine whether the Board's decision was the correct or preferable decision on the day that the board made it. Evidence of what happened in the Court application would thus be irrelevant. 12 Secondly, in the Tribunal's view once the Tribunal had found that Mr Birdseye was a bankrupt, it was mandatory for the Tribunal under s 1292(7) to cancel Mr Birdseye's registration as an auditor. In this respect the issue for the Board, and on review, for the Tribunal differed from the issue which would arise under s 1292(1) in that a finding that a person had inadequately carried out his or her power as an auditor, or was not a fit and proper person to be an auditor did not make it mandatory that the Tribunal cancel the registration. The Tribunal, acting under that section, had a discretion whether to make an order that the registration be cancelled or suspended. This, however, was not the case under s 1292(7) where the Tribunal had no discretion. 13 Thirdly, in the Tribunal's view the proceedings in the Court could, in any event, not affect the outcome for Mr Birdseye would, whether or not given leave to manage a company or particular class of companies still be a person disqualified from managing corporations under Part 2D.6. This being the case it was mandatory that the Board or on review the Tribunal cancel or suspend his registration. 14 Finally, the Tribunal considered the question whether, it had power to review the decision of the Board to refuse Mr Birdseye the adjournment. The Tribunal concluded that it did not, for the decision to refuse an adjournment was a procedural decision lacking the necessary quality of finality to bring it within the meaning of a "decision" as referred to in s 1317B(1) of the Law. 15 It is from this decision of the Tribunal that Mr Birdseye appeals.

The submissions on behalf of Mr Birdseye. 16 Counsel for Mr Birdseye submitted: 1. The Tribunal erred in law in deciding that the question before it was whether the decision under review was the correct or preferable decision having regard to the material before the Board and failing to consider the material before the Tribunal, including, the fact that Birdseye proposed to apply to the Court for leave to participate in the administration of a corporation or class of corporations. In particular it was submitted that the Tribunal erred in following the decision of Davies J in Freeman, that case depending upon the provisions of the Social Security Act and confined in its application to the consequence of cancellation of a pension payable under that Act. 2. That because the public interest was involved, once it was shown that the Tribunal erred in confining itself to the material before the Board the court should remit the matter to the Tribunal for decision. 3. The Tribunal erred in holding it had no discretion once it was shown that Mr Birdseye had become bankrupt. 4. Finally, the application under s 206G which Mr Birdseye had proposed to make and which in fact had subsequently (ie after the decision of the Tribunal had been given) been made, was material to the issue of whether the registered auditor was a person disqualified from managing corporations. In the absence of a determination of the s 206G application the basis for the lawful exercise of power under s 1129(7) could not be determined.

Reasoning on the appeal 17 In the usual case it is clear that the role of the Tribunal is to do again what the decision maker did (with all the powers and discretions of the decision maker) so as to arrive at the right or preferable decision. In this usual case the Tribunal will have regard not merely to the material before the decision maker, but also such additional material as may be admitted into evidence before it: Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 589. The relevant time at which the Tribunal in such a case will make its decision will be not the date of the original decision under review but the date of its own decision. But, in deciding whether a particular case does fall into the usual case, it is necessary to construe the legislation in question and particularly to consider what the decision is which the Tribunal is authorised to review. 18 Freeman was, as Mr Birdseye's counsel notes, a decision under the Social Security Act. The decision to be reviewed by the Tribunal was whether a widow's pension should be cancelled. Davies J, after referring to the decision under review said at 344-345: "The function of the Tribunal was therefore to reconsider the decision of 19 May 1987 and to determine whether the decision to cancel Mrs Freeman's widow's pension at that time was the correct or preferable decision to have been made. In coming to its decision, the Tribunal was entitled to take into account all the facts proved before it. But the issue was whether, having regard to those facts, the decision to cancel made on 19 May 1987 was the correct or preferable decision, not whether Mrs Freeman had an entitlement to a widow's pension as at the date of the Tribunal's decision. Regard must always be had to the nature of the decision which is under review." 19 By contrast, as Davies J pointed out in the same case at 345, where the decision under review was a decision refusing to grant a pension, the issue before the Tribunal would involve the Tribunal considering entitlement not only as at the date of the original decision, but also as at the date of the Tribunal's decision. This was because the entitlement for grant of a pension was an ongoing entitlement and the function of the Tribunal was, as Davies J described "an administrative continuum." 20 It is unnecessary in this case to consider whether the Tribunal was correct in the conclusion it reached that its function was to consider as at the date the Board made its decision whether that decision was the preferable or correct decision. In saying that I have no reason to doubt the correctness of what the Tribunal said. However, the present case can be decided on a simpler ground. 21 For present purposes, let it be assumed that the question was, as counsel for Mr Birdseye suggested what the correct or preferable decision was, looking at the matter as at the date of the Tribunal's decision. The only relevant matter raised before the Tribunal was that Mr Birdseye contemplated in the future applying to the Court for leave to participate in the administration of certain companies. (I might interpolate that as at the time the Board made its decision Mr Birdseye had indicated that he had the same contemplation - nothing had changed. He had not yet made any application to the Court.) But let it further be assumed, contrary to the fact, that Mr Birdseye had in fact at the time of the Tribunal's hearing made an application to the Court which was still pending. Would the making of that application have been capable of having any effect on the Tribunal's decision? Unless it would, that is to say, unless it was open to the Tribunal to find on the basis of the proposed application, that Mr Birdseye's registration as an auditor should not be cancelled, any error which the Tribunal may have made in the application of Freeman would not alter the decision. 22 In my view the Tribunal was correct in the interpretation it gave to s 1292(7). The language of the section is quite clear. It requires the Board (or the Tribunal, in the event of an application to the Tribunal to review the Board's decision) if satisfied that the person is disqualified from managing corporations under Part 2D.6, to cancel the registration. On the facts of the present case the only relevant fact to be determined by the Board, or the Tribunal was whether Mr Birdseye was disqualified from managing corporations generally. He was so disqualified if an undischarged bankrupt. That disqualification remained, whether or not he applied for and obtained leave from the Court to participate in the management of a particular company or class of companies. While it is true, as the Tribunal said, that gaining the order of the Court had the consequence that the applicant to the Court would not commit an offence under s 206A(1) by participating in the management of those companies in accordance with the orders of the Court, that does not mean that the person was in consequence disqualified from managing corporations generally, he was. 23 The situation might, perhaps, be different, if the Court had power to give leave generally to participate in the management of companies. However, as I have already noted, it was conceded and rightly conceded by counsel for Mr Birdseye that the Court had no such power. Its only power under the Law was to give leave to participate in the management of a particular corporation or class of corporations. Even if the Court did give power to an insolvent person to participate in all corporations of which, as a matter of fact, and at the time of insolvency he was auditor, that order would not permit the insolvent to participate in the management of any other corporation not the subject of the Court order. He or she would thus still be a person disqualified from managing corporations generally (other than those in respect of which the Court order was obtained.) Being such a person the Board (or the Tribunal in its place on a review) was required to order the cancellation of Mr Birdseye's registration, once it found he was a bankrupt. It had no discretion. It follows that I agree with the Tribunal that the proceedings, if any, in the Supreme Court could not affect the outcome of the review.

Are the proceedings moot 24 It was submitted on behalf of Mr Birdseye that since he had now ceased to be a person disqualified from Managing corporations under Part 2D.6 because he has been discharged from bankruptcy the issue was moot and the Court ought not to remit the matter to the Tribunal. In my view, the matter is not moot. Should Mr Birdseye have participated in the management of any of the companies after the date of the Board's decision that participation would, absent approval from the Court, contravene the Law. The Board's decision to cancel the registration is still in effect. Its decision is still effective and binding upon the parties. 25 I would accordingly dismiss the application and order Mr Birdseye to pay the costs of it. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Associate: Dated: 19 March 2002 Counsel for the Applicant: Martin Keith

Counsel for the first Respondent: Katherine Bean

Solicitor for the first Respondent: Australian Government Solicitor Counsel for the second Respondent: Cassandra Francas Solicitor for the second Respondent: Australian Securities and Investment Commission

Date of Hearing: 18 February 2002

Date of Judgment: 19 March 2002

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