Blunt v Corporate Affairs Commission

Although the amended application for an order of review was expressed in terms seeking relief under s 39B of the Judiciary Act 1993 (Cth) and under s 5 and s 6 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) Mr Vickery QC, who appeared with Mr Herskope, for the applicant, confined his submissions to attacking what he said was the "conduct" of the delegate for the purpose of s 6 of the Administrative Decisions (Judicial Review) Act 1977 (Cth). The conduct attacked was: "1. The failure of the Respondent to provide the particulars sought by the Applicant by his notice served on the Respondent being a Request For Particulars of Areas of Concern dated 14 May 1997 or any further particulars prior to proceeding to conduct a hearing pursuant to s.600(3) Corporations Law; 2. Proceeding to conduct the hearing pursuant to s.600(3) Corporations Law in respect of the Applicant without providing to the Applicant the particulars sought by the Applicant by his notice served on the Respondent being a Request For Particulars of Areas of Concern dated 14 May 1997 or any further particulars." Essentially the attack made by the applicant was that the failure of the delegate to provide the further particulars was a denial of natural justice thereby invoking s 6(1)(a) of the Administrative Decisions (Judicial Review) Act or failing to observe procedures required by law to be observed (presumably relying on s 59(2) of the Australian Securities Act) thereby invoking s 6(1)(b) of the Administrative Decisions (Judicial Review) Act. It was accepted by the respondents that the rejection by the delegate of the request for particulars involved conduct engaged in by the Commission for the purposes of making a decision to which the Administrative Decisions (Judicial Review) Act 1977 (Cth) applied. The Commission said that the conduct complained of was not a denial of natural justice or procedural fairness. It was not in issue between the parties that the hearing conducted under s 600(3) of the Corporations Law was to be conducted in accordance with the rules of natural justice, but there was a controversy between the parties as to what was the content of such rules in the context of a hearing under s 600(3). The applicant's case was that he was entitled to know the case which was sought to be made against him (relying on Kioa v West (1985) 159 CLR 550, 582, 587, 613) and that he was entitled to know what matters were being relied upon by the Commission in considering firstly, the giving of a notice under s 600(2) and secondly, the possibility of serving a notice under s 600(3), relying on FAI Insurances Limited v Winneke (1982) 151 CLR 342, 378. The procedure contemplated by s 600 involves two stages, firstly, the giving of a notice to a relevant person to show cause why the Commission should not serve on the person a notice under s 600(3) prohibiting the person from managing a corporation and secondly, the service of such a notice after giving the person an opportunity of being heard in relation to the matter. The hearing provided for in s 600(3) is not an investigation or enquiry, as such, but rather an opportunity given to the person to be heard and to make submissions in relation to whether or not he or she should be banned from managing a corporation. The procedure contemplated by s 600 is triggered, at the discretion of the Commission, after a liquidator of a company has under s 535(1) of the Corporations Law reported with respect to a matter relating to the ability of a company to pay its unsecured creditors. By virtue of the procedure provided by s 600 the Commission becomes obliged to consider the particular conduct of the director concerned. This section and its predecessor has been the subject of judicial consideration and the cases establish that the Commission is required to address a range of matters when looking at the conduct of the person to whom the s 600 notice is directed, namely whether there has been a breach of standards of commercial morality, recklessness, gross incompetence and/or whether the public interest requires that a person concerned should not take part in the management of a corporation. In Blunt v Corporate Affairs Commission (NSW) (No 2) (1988) 14 ACLR 270, 272 Young J adopted the test propounded by Hoffman J in Re Dawson Print Group Ltd [1987] BCLC 601, 604 in relation to the equivalent English section where he said: "Nevertheless, looking at it from the point of view of the director on the receiving end of such an application, I think that justice requires that he should have some ground for feeling that he has not simply been picked on. There must, I think, be something about the case, some conduct which if not dishonest is at any rate in breach of standards of commercial reality, or some really gross incompetence which persuades the court that it would be a danger to the public if he were allowed to continue to be involved in the management of companies, before a disqualification order is made". (See also Dwyer v National Companies and Securities Commission (No 2) (1989) 7 ACLC 733, 746). However, these considerations are not found in the terms of the legislation. Section 533 requires a liquidator to lodge a report if it appears to him in the course of the winding up of a company that an officer may have been guilty of an offence, that a person who has taken part in the management or winding up of a company has misapplied money or been guilty of any negligence, default or breach of duty or that the company may be unable to pay its unsecured creditors more than fifty cents in the dollar. The matters set out in s 533 are disjunctive so that a liquidator may simply report on the fact that a company may be unable to pay its unsecured creditors more than fifty cents in the dollar without reporting on any particular matter in respect of a director. It seems to me therefore that it does not necessarily follow that a disqualification order can only be made after there is established some conduct which is in breach of standards of commercial morality or involves gross incompetence. As s 600(2) entitles the Commission to give a notice to a person who is a relevant person in relation to two or more relevant bodies it seems to me that the legislation contemplates that it would be open to the Commission to serve a notice on a person prohibiting him or her from managing a corporation simply because that person had been a director of two or more companies which had been unable to pay their unsecured creditors more than fifty cents in the dollar. Putting the matter another way, the power given to the Commission under s 600 may be exercised because of the fact of such an association independently of pointing to any particular default on the part of the person to whom the notice is addressed. The obligation to observe natural justice in any particular context does not ipso facto identify the manner in which the obligation is to be discharged. The basic touchstone is the requirement of fairness, having regard to all the relevant circumstances of the case. This concept was considered recently by the Full Court of the Federal Court in Boucher v Australian Securities Commission (1996) 22 ACSR 503 where the Court was concerned with the power of the Commission to make a banning order on a stock broker pursuant to s 829 of the Corporations Law. The issue arose whether, after the hearing had been concluded and submissions had been made, it was competent for the Commission to allow the introduction of further evidence. The appellant submitted that natural justice had been denied because of the introduction of the further evidence and the rules governing the re‑opening of a party's case in court should be applied. The Full Court rejected this submission and said at 509: "It is erroneous to equate the duty of an administrative decision‑maker to comply with the rules of natural justice with a duty to follow curial procedures ... As the modern cases show, the emphasis in determining what an administrative decision‑maker must do to discharge an obligation to comply with the rules of natural justice is on flexibility rather than on compliance with rigid procedures. In the present case, so far as the appellant is concerned, that would require the decision‑maker to adopt a procedure which would be fair in all the circumstances to him as a person whose rights, interests or legitimate expectations are liable to be affected by the making of a decision in question. A consequence of this new emphasis is, in the oft‑quoted words of Stephen J in Salemi v MacKellar ... that the rules of natural justice 'may also vary from case to case although each be conducted before one and the same tribunal'." It is also important to bear in mind, as the Commission accepted, that the Commission must disclose to the person served all the material related to its ultimate decision, that is to say upon which it proposes to rely so that the relevant person can respond to it. So much follows from Mahon v Air New Zealand Limited [1985] AC 808, 821. The Commission says that this principle creates no problem in a s 600(3) hearing as the person served with the notice receives what the Commission calls "the whole file", that is to say he receives a copy of the liquidator's reports, a copy of the material by reference to which the Commission determines that s 600 applies and he is also given the opportunity, as has occurred in this case, to cross‑examine any witnesses who give evidence at the hearing. In the present case Mr Garry Trevor from the liquidator's office was called by the Commission to give evidence before the hearing on 13 March 1997. The applicant was given the opportunity to cross‑examine Mr Trevor but has deferred exercising that right until the issue relating to the provision of particulars is resolved. In order to understand the applicant's principal submissions it is necessary to recall what occurred as a result of the first respondent becoming the delegate of the Commission for the purpose of the s 600(3) hearing. The first delegate resigned from that position after he had heard the evidence and submissions in December 1995. As a result of the nomination of the second delegate the parties agreed that the evidence and submissions before the first delegate should be adopted before the second delegate. Accordingly although there was technically a new hearing on 14 May 1997 nothing turns on this point because of the agreement of the parties. Mr Vickery submitted that the areas of concerns set out in the amended notice were inadequate as particulars identifying the matters which the applicant had to meet as they were too broad and did not focus on the applicant's particular conduct. He submitted, in substance, that the applicant was entitled to know how the Commission put it that the various companies' activities were put against him and that it was not sufficient simply to say that the applicant had been associated with a number of failed companies because that said nothing about his incompetence or commercial reality or any of the matters referred to by Young J in Dwyer v National Companies and Securities Commission (No 2) (supra). However, that submission misconceives the manner in which the Commission through its delegate, can undertake the task required as a result of the service of the notice under s 600(2). The Commission is to serve a notice prohibiting a person from managing a corporation (after giving the person an opportunity of being heard) unless it is satisfied that it is not appropriate to do so. In considering whether or not it should serve the notice the Commission will have regard to such matters as are available to it, in relation to the relevant director. What is important is that the Commission make that information available to the director to enable him to comment upon it or lead such further evidence or make such further submissions before it as he may consider appropriate, having regard to the information which the Commission has identified (cf Mahon v Air New Zealand Limited (supra at 821)). Mr Vickery submitted that the necessity for the particulars should be considered in two respects: (a) in relation to five companies nominated in the original notice (Axtrack Australia Pty Ltd, having been abandoned); (b) in relation to Sandhurst Mining NL and Balgold Nominees Pty Ltd. I turn first to the five companies the subject of the original notice. No particulars were sought in relation to them at the time of the first hearing in December 1995. The applicant does not put its case in relation to these companies on the basis that natural justice required the particulars in order to deal with the matters raised in those five companies at the time they were raised in December 1995. Rather the applicant says that as a result of that hearing there is now a new body of information before the Commission which did not exist at the outset of the proceedings, namely Mr Laycock's earlier evidence and the witnesses whom he called in December 1995. In effect, the applicant is seeking particulars from the Commission as to its response to this evidence. The applicant is submitting that as a result of having led evidence the Commission ought to be in a position to define what remains as its areas of concern having regard to what the Commission has already heard from the applicant. The applicant says that there is now a new body of information before the Commission which did not exist at the commencement of the hearing and that the applicant does not know whether to call any further evidence or make any further submissions because he does not know what remains of concern to the Commission. The applicant is not seeking particulars of the matters that gave rise either to the serving of the notice nor is he seeking particulars of the basis upon which the Commission may be disposed to act. Rather the applicant is saying that he has called evidence and is wanting to know whether he should call further evidence and he is asking the Commission to review the evidence to date and state, in substance, whether any evidence led by him is inadequate and whether there are still matters which concern him. Mr Vickery put the matter bluntly by submitting that the Commission was obliged to tell the applicant whether he has addressed adequately the matters which concern the Commission. Mr Vickery said that the applicant's case in relation to the first group of five companies was not that particulars were required in order to know what case he had to meet in the first instance, but rather, having presented his case, the particulars were required if the Commission still had matters of concern. He relied upon the passage in Mahon v Air New Zealand Limited (supra) where Lord Diplock said (at 821) there were two rules of natural justice germane to the appeal before the Privy Council. The first rule was that the decision‑maker should base his decision on probative evidence in the sense he described. The second rule was that the decision‑maker: "must listen fairly to any relevant evidence conflicting with the finding and any rational argument against the finding that a person represented at the inquiry, whose interests (including in that term career or reputation) may be adversely affected by it, may wish to place before him or would have so wished if he had been aware of the risk of the finding being made." Lord Diplock continued at 821: "The second rule requires that any person represented at the inquiry who will be adversely affected by the decision to make the finding should not be left in the dark as to the risk of the finding being made and thus deprived of any opportunity to adduce additional material of probative value which, had it been placed before the decision‑maker, might have deterred him from making the finding even though it cannot be predicted that it would inevitably have had that result." Mr Vickery also relied upon a decision of the Full Court of the Federal Court in Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 where at 591 the Court said: "Where the exercise of a statutory power attracts the requirement for procedural fairness, a person likely to be affected by the decision is entitled to put information and submissions to the decision‑maker in support of an outcome that supports his or her interests. That entitlement extends to the right to rebut or qualify by further information, and comment by way of submission, upon adverse material from other sources which is put before the decision‑maker. It also extends to require the decision‑maker to identify from its nature or the terms of the statute under which it is made. The decision‑maker is required to advise of any adverse conclusion which has been arrived at which would not obviously be open on the known material. Subject to these qualifications however, a decision‑maker is not obliged to expose his or her mental processes or provisional views to comment before making the decision in question." However neither of these decisions requires the Commission to provide particulars of the type sought by the applicant. In particular the applicant is not entitled to require the Commission, whether through the provision of particulars or otherwise, to express a tentative or provisional view about how it sees the state of the evidence at any particular stage of the hearing. Put colloquially, the applicant is not entitled to a "quote" from the Commission. It is not the function of particulars in the traditional litigation sense, or to discharge any obligation to comply with the rules of natural justice, to respond to the concerns raised by the applicant. Mr Vickery submitted that as a result of the material which had been led by the applicant the evidence pointed in only one direction, namely that the applicant was not incompetent and had not breached any standards of commercial morality. Accordingly, he said, the applicant should be entitled to know whether the Commission has any outstanding concerns. However the applicant is not entitled to delve into the Commission's mental processes in the course of the hearing but he is entitled to know the nature and content of the material upon which the Commission ultimately bases its decision. Mr Cranswick QC, who appeared with Mr Hiland, for the respondents, noted that the present delegate, the first respondent, has sworn an affidavit in which he has said that copies of all relevant reports in relation to the relevant companies under s 533 of the Corporations Law prepared by the liquidator and all other material available and used by the Commission for the purposes of reaching its decision to serve the notices to show cause upon the applicant have been supplied to the applicant. He then says that he has afforded, and will continue to afford, the applicant every opportunity at any further hearing to make such further submissions and adduce such further evidence as he wishes. He concludes his affidavit as follows: "In conducting the hearing I have not reached any conclusion as to whether or not the ASC should serve on the Applicant a notice pursuant to subsection 600(3) of the Corporations Law and I will only consider that question when all matters and submissions the Applicant decides to put to me have been put to me."

In my opinion the relevant obligation imposed upon the Commission by the rules of natural justice is to ensure that, before reaching a decision on whether to serve a notice prohibiting the applicant from managing a corporation, the Commission has made available to the applicant all the material available to it in respect of which, and upon which, it will base its decision. The delegate is also obliged to give the applicant the opportunity to place such evidence before it and to make such submissions to it as the applicant may be advised. It is also obliged, if in the course of the hearing it becomes aware of other material not put to the applicant or made available to him, to provide it to him and if he considers there is a particular basis or a particular matter which justifies or warrants the service of a notice or does not satisfy him that it is not appropriate to serve a notice he must bring that matter to the attention of the applicant to enable him to make submissions in relation to it. However, none of these obligations require the delegate to respond to a request for particulars of the type served in this case. It must be remembered that the applicant's complaint is about the manner in which the Commission is conducting the hearing and there is no suggestion, and indeed the evidence is to the contrary, that the Commission is not giving the applicant the opportunity to respond to, and make submissions in relation to, all the material put before the Commission. The applicant complains that it has to prove a negative and that it is difficult, if not impossible, to know what it is that concerns the Commission. However, such difficulty as may arise in having to prove, as the applicant says, a negative, flows from the show cause procedure contemplated by s 600. Nevertheless, such procedure requires natural justice to be observed at the hearing for which the section provides and the relevant dictates of natural justice are, in my view, satisfied in the manner to which I have referred. In my view the service of a request for particulars in a s 600(3) hearing is not an appropriate procedure to be adopted. It is not an adversary procedure, nor is it inquisitorial, nor is it an enquiry. Rather it is a hearing which enables the applicant to respond to, make submissions in relation to and, indeed, call further evidence in relation to, the material before the Commission. So long as the Commission gives the applicant the opportunity to respond to that material and to any particular matter which arises out of it which the Commission considers relevant to the exercise of the power given to it under s 600(3) the dictates of natural justice and in particular the obligation cast on the Commission by s 59(2)(c) of the Australian Securities Commission Act will be satisfied. In relation to Sandhurst Mining NL and Balgold Nominees Pty Ltd the applicant puts a different submission. The applicant says that the affairs of Sandhurst Mining NL and Balgold Nominees Pty Ltd were complex, involving overseas operations and a large number of transactions. It is acknowledged by the applicant that he has been provided with a brief of evidence containing the liquidator's reports and documents obtained from the liquidator, as well as the areas of concern to be addressed by him set out in the amended notice. The applicant submits that the areas of concern are completely inadequate and that the items there set out do not identify conduct or transactions in respect of which he can be said to have been incompetent. However, that is a matter for submission and, if the applicant considers it appropriate, the leading of evidence. As I have pointed out earlier, the Commission should only make its decision upon matters and material which have been drawn to the applicant's attention and in respect of which he has been given an opportunity to respond. Mr Vickery asks the question rhetorically what reasons should the applicant give for the demise of Sandhurst Mining NL which is adequate to answer the Commission's concern? He points to the area of concern that the companies will be unable to pay fifty cents in the dollar to their unsecured creditors and he asks the question what specific conduct is said to be reckless and what transactions are said to lead to the results referred to? The answers to those questions depends upon the material placed before the Commission. It is for the Commission to decide as to the basis upon which it may act and if it decides to act on a basis which is not articulated in the material or has not been articulated by it at the hearing it is bound to tell the applicant of this matter and give him the opportunity to respond to it. The delegate has said he will give the applicant every opportunity to make such submissions as he wishes. If, as Mr Vickery submits, the evidence is all one way in favour of the applicant, that is not a matter for particulars identifying the concerns of the Commission but is rather a matter for final submission to the delegate.

The request for particulars in relation to Sandhurst Mining NL and Balgold Nominees Pty Ltd is not an appropriate procedure to be adopted in a hearing conducted under s 600(3) and the Commission is not obliged to respond to it. The application will be dismissed with costs. I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg

Counsel for the Applicant: Mr P N Vickery QC and Mr A Herskope

Counsel for the Respondents: Mr P Cranswick QC and Mr P Hiland

Solicitor for the Respondents Australian Securities Commission