Chapel Road v ASIC

Chapel Road v ASIC - [2007] NSWSC 975 - NSWSC 2007 case summary — Zoe

[39]

"(1) that proceedings of the kind to which the tort applies (generally, as in this case, criminal proceedings) were initiated against the plaintiff by the defendant;" 22 True it is that the High Court was relying upon the 1868 edition of Bullen & Leake Precedents of Pleading to identify the elements of the tort but their Honours were intending to state the present position of the law. The Court in that case, as has already been noted, was not concerned with considering that element of the tort and, in particular, whether there remained a limitation on the applicability of the tort to certain proceedings, generally criminal. However the fact that the Court was prepared to adopt it as a correct statement of the first element of the tort, without any comment or caveat but with the inclusion of the words in parenthesis, is not an irrelevant matter. 23 I have been taken at length to the decisions that were considered and analysed in detail by her Honour. But given the issue before the Court it seems to me that the position can be stated briefly. By doing so I do not mean to demean her Honour's discussion of the history of the tort, her analysis of relevant cases, or her review of the academic criticisms of the present position. But applying as widely as I can the statement of principle set out in paragraph 5 above, it does not permit this Court to indulge in simple speculation about where the law might move in the foreseeable future. It seems to me that there has to be some reasonable prospect, Master Allen described it as a "reasonable possibility", that, even though the established law did not permit the plaintiff's action at the present time, there might, within the life of the proceedings, be a change in the law that would give the plaintiff a valid cause of action. 24 I accept that the trial court should be careful not to visit injustice upon a plaintiff who may have suffered significant loss by the actions of the defendant by too readily dismissing a claim. But on the other hand the defendant is entitled not to be vexed by proceedings which have no real prospect of success simply because there is some chance, however remote, that the law might change and provide the plaintiff with a cause of action, where currently there is none, or permit a cause of action to be pursued, where presently it cannot be sustained. With respect to the Associate Justice there does not seem to me to be any reasonable prospect in the foreseeable future, certainly within the life of these proceedings, that the law will change to such a degree as to permit a claim of malicious prosecution to be brought against a decision such as was made by ASIC under the provisions of the Corporations Law, however that decision might be categorised. 25 The Court is here concerned with a common law tort and such a cause of action is developed or refined, subject to legislative intervention, over time as the common law develops in order to meet situations that it needs to address. There is a considerable reliance on policy considerations in the development or refinement of the common law, as can be seen in cases relating to claims for damages based upon personal injury arising from dangerous public places decided before the Civil Liability Act came into force. 26 It is not as if the scope of the tort has been a matter that has been left unexplored and unconsidered since the 3rd edition of Bullen & Leak was published so that the common law may have fallen behind the needs of modern society and is therefore ripe for review. It is a subject that has been specifically considered by one of the highest courts in the common law world as recently as the year 2000. That decision has been applied by an intermediate appellate court in Queensland without the slightest suggestion that the winds of change are mounting to such a degree that a tornado is suddenly to be whipped up over-turning at least a century of established law. 27 If ASIC is to be made liable for compensation for the misuse of its power under the provisions of the Corporations Law, or the statute that replaced it, then the most likely response is for the legislation to provide such a right to the person injured by the misuse of the power. As I have indicated, there are matters of policy arising in considering whether the common law should provide a remedy in such a case and a court in considering that issue would have to take into account the function and duty of ASIC to act quickly to protect the public from possible harm arising from the misconduct of a company operating with a license under its control. 28 The present position stated simply is that the tort of malicious prosecution has never been seen to extend beyond legal proceedings and is generally confined to criminal proceedings and some specific civil proceedings: see Gregory v Portsmouth City Council [2000] 1 AC 419. In that case the House of Lords refused to extend the tort to disciplinary proceedings brought by a local authority against a councillor. The Court of Appeal by majority held that the tort did not apply. The House of Lords unanimously dismissed the appeal. Lord Steyn, who delivered the principal judgment, stated (at 431):

[45]

[229] Despite this, and the potential for this severe impact and damage which might be suffered by a police officer who was wrongfully subjected to the malicious institution of police disciplinary proceedings, the authorities are, to my mind, clear and uncompromising against the extension of the tort of malicious prosecution to any such situation. It follows that I conclude that that cause of action, as distinct from the claims for injurious falsehood, misfeasance in public office or abuse of process, does not lie in relation to the disciplinary charges laid against Noye." 31 The analysis by her Honour in the present case relied heavily upon the dissenting judgement of Schiemann LJ in the Court of Appeal in Gregory, a judgment that was emphatically rejected by the House of Lords. Her Honour also considered in some detail the decision in Little v Law Institute of Victoria [1990] VR 257, a case concerned with the scope of the tort in its application to civil proceedings. She also found some suggestion that the law might change in the decision of the High Court in Rich v Australian Investment Commission (2004) 220 CLR 129 on the basis that in some way it blurred the distinction between disciplinary and administrative proceedings, at least where a penalty is involved. With respect, I can see nothing in that decision that touched on the present issue as that case was concerned with the classification of proceedings as either protective or punitive. 32 In my respectful opinion there was no basis for her Honour to conclude, for the purposes of determining the notice of motion, that it was arguable that the tort of malicious prosecution applied to administrative proceedings. The present law is overwhelmingly against that proposition and there is nothing that suggests that the situation might possibly change during the currency of these proceedings if they were allowed to continue. 33 This finding is sufficient to determine the matter and dismiss the appeal so far as the claim based upon malicious prosecution is concerned. However, at the hearing of the appeal an issue arose as to whether the decision made by the ASIC delegate could be considered to be a proceeding, let alone an administrative proceeding, to which malicious prosecution might one day in the foreseeable future apply. This was not a matter to which argument was directed before her Honour. 34 It is sufficient for me to note that I am unpersuaded that the decision made by the delegate of ASIC was a "proceeding" for the purposes of the tort of malicious prosecution. I accept that the traditional concept of a proceedings as the 'invocation of jurisdiction of the court by process other than a writ'; Herbert Berry Associates Limited v Inland Revenue Commission [1978] 1 All ER 161] or an application by a suitor to a court in its civil jurisdiction for its intervention or action; Cheney v Spooner (1929) 41 CLR 532 at 535-536 has been widened for some purposes to include administrative processes such as the seeking and obtaining of an extradition order; Forrest v Kelly (1991) 32 FCR 558 at 568-569. There are statutes that define the word for the purposes of their provisions very widely. 35 The meaning to be attributed to the word will no doubt depend upon the context in which it is being considered. But I would not conclude for the purposes of considering the scope of the tort of malicious prosecution that a decision made in respect of the company's licence was a "proceeding" notwithstanding that the company was entitled to have a hearing in relation to the decision and to give evidence before the decision maker. There was no compulsion on the company to attend or to take any action in respect of the decision being made. The legislation gave the company a measure of procedural fairness in relation to the decision because it might affect the company's rights, but that does not seem to me to convert the hearing into a proceeding to which the tort applied.

[46]

(c) Favourable termination of the proceedings 36 Her Honour concluded that it was arguable that the proceedings in the AAT resulted in a favourable determination for the company. This is the fourth of the elements of the tort as her Honour listed them. 37 As the tort generally applies to criminal proceedings, most of the authorities upon the scope of this element of the tort are in terms of the resolution of criminal proceedings in something less than a conviction. The argument proceeded on this issue at the hearing of the appeal by analogy with the outcome of criminal proceedings including conviction and sentence. So the fact that the prosecution resulted in a more lenient sentence on appeal does not mean that the plaintiff enjoyed a favourable termination of the proceedings, even where the offence was found proved but no conviction was recorded: Cameron v James [1945] VLR 113. However a favourable termination will occur regardless of how the prosecution came to an end; whether through acquittal, with the quashing of the indictment, by a nolle prosequi, or the setting aside of the conviction on appeal. The significant fact is that the plaintiff has not been convicted of the offence in respect of which the prosecution was brought: Commonwealth Life Assurance v Smith (1938) 59 CLR 527 at 535. 38 The AAT proceedings concluded in the company having its licence reinstated with the matter being referred back to ASIC to determine the appropriate conditions to which the licence was to be subject. The relevant part of the reasons of the Tribunal has been quoted above. But the AAT made findings that the company "may have breached its licence" and "may not at the time have performed efficiently, honestly, and fairly the duties of the holder of a dealer's licence….". For the purposes of the Tribunal it did not have to, or did not see fit to, make findings of fact to the same degree of precision as would be required in criminal proceedings. But these findings, such as they are, did not favour Chapel Road. By analogy with criminal proceedings, the conviction was confirmed but the sentence varied. This would not be an outcome that could support proceedings for malicious prosecution. 39 One of the difficulties in the determination of this issue is that ASIC was exercising a discretion based upon the facts and circumstances relevant at the time of the making of the decision in relation to the licence. It can be seen from the AAT's reasons that its decision was to a very significant degree based upon the facts and circumstances at the time of the hearing of the appeal. One of the circumstances tending to favour Chapel Road was the very fact that the licence had been revoked and the company had been without it for a period of time. This was seen as fulfilling the deterrent aspect of ASIC's decision. 40 But the AAT's decision was not in effect to clear the company of any suggested wrongdoing as if it were being acquitted of the charge brought against it by ASIC. Rather the AAT decided that, as an alternative to taking away the company's licence, it would have been appropriate for the licence to have been subject to further conditions. The relevant portion of the judgment is:

[47]

"Bearing in mind the protective/preventative nature of ASIC's power, in the Tribunal's opinion the appropriate course was not to revoke Chapel Road's licence but to impose appropriate conditions pursuant to s 786(1). Such conditions might have required regular reviews, perhaps six monthly, of Chapel Road's compliance regime by an external consultant approved by ASIC, over a period of perhaps two years, on the basis of Chapel Road undertaking to implement reasonable recommendations for change made by the consultant and approved by ASIC considered necessary to achieve the required standard of compliance." 41 The only way in which the proceedings terminated favourably to the company was that, instead of its licence being further suspended or revoked, it received the licence back but on conditions to enforce its compliance with the spirit of the licence. The fact that ASIC chose not to impose any further conditions when the licence came back to it for consideration does not seem to me to matter. At the outcome of the AAT proceedings Chapel Road was, theoretically at least, in a worse position than it had been before ASIC made its decision to revoke the licence. 42 There were a number of allegations made by ASIC to justify the proceedings it took and the decision that was made in relation to the company's licence. They are set out in a schedule attached to further submissions made on behalf of Chapel Road after the Court reserved its decision on the appeal. The schedule sets out against each allegation what purportedly was the outcome of the appeal in relation to that particular allegation. The schedule indicates that many of the allegations were either "not proven" or "not pressed". I am willing to act on the schedule although it is not altogether clear to me what was the result of each and every allegation. 43 In this regard Chapel Road relies upon a decision that, for the purposes of the tort, a prosecution results in a favourable termination where only one out of a range of charges was proved: Boaler v Holder (1887) 52 LT 298. It seems to me that this approach is misconceived. I do not believe that it is appropriate to consider each allegation upon which ASIC relied to justify a review of the company's licence as the equivalent of a separate charge in criminal proceedings for multiple offences. Each of the criminal charges gives rise to a separate prosecution that can terminate in that charge being made out and, if so, in the imposition of a distinct penalty for that offence. It is in such a case understandable that each charge gives rise to a separate proceeding in respect of which the tort of malicious prosecution might apply. In my opinion there is no analogy between multiple criminal prosecutions and multiple allegations relied upon as the basis for a single decision to be made in the exercise of a discretionary power. 44 In any event it cannot in my view be argued that the proceedings before ASIC terminated favourably to the company given the terms of the decision that in effect found that at least some of the allegations brought by ASIC justified some change in the terms of the licence so as to impose more obligations upon the company than previously had been the case. 45 Were it necessary to do so, I would find that her Honour erred in determining that it was arguable that the proceedings brought by ASIC terminated favourably to Chapel Road in a manner sufficient to support a claim for damages based upon malicious prosecution. 46 It follows that in my opinion, but for different reasons than those found by the Associate Justice, that her Honour was right to strike out that part of the statement of claim relying upon the tort of malicious prosecution.

[50]

"6 The plaintiff duly appeared at a hearing before the defendant, led evidence in answer to the concerns made the subject of the notice and made submissions to the effect that an order should not be made revoking the licence." 51 But it seems to me that the simple fact that Chapel Road only made written submissions and did not appear at a hearing before ASIC's delegate would not without more be sufficient to render the decision of ASIC to revoke the licence invalid or unauthorised. The pleadings are silent as to what the real situation was particularly as to the suggested misunderstanding between ASIC and the company. In any event this aspect of the history of the matter is not pleaded as giving rise to any invalidity in the decision maker or to a knowledge of any invalidity of the decision on the part of ASIC or its delegate. There is no pleading based upon a failure to accord the company procedural fairness or a failure to comply with the requirements of the Corporations Law. On the material in the pleadings there is no arguable case that would support the cause of action based merely upon the conduct of the proceedings leading to the decision to revoke the licence. 52 However, the complaint is not so much that there was a lack of procedural fairness in the nature of the hearing but rather that unfairness arose in the conduct of ASIC leading up to the hearing, and in particular the failure of ASIC to provide an opportunity to meet the case made against the company. As I understand the argument, it would not have mattered had there been a hearing where Chapel Road could have given evidence. The allegation is that ASIC so organised matters that it deprived the company of addressing the allegations by giving it the opportunity to amend its behaviour and alleviate any concern that it was not complying with the conditions of its licence. 53 There is an allegation that ASIC had acted in a manner inconsistent with its function and duty in that it had acted to punish the company rather than to protect the public. In light of the decision of the High Court in Rich, that allegation is no longer pursued. 54 The argument on appeal is that her Honour failed to consider whether there was an arguable case on the basis of the allegations raised in the pleadings to the effect that ASIC had carried out its functions and duties in respect of Chapel Road in bad faith, with the intention of harming the company and that such can be inferred from its conduct prior to the hearing by its delegate and is confirmed by the unreasonableness of the delegate's findings. 55 The statement of claim relies upon a number of allegations that are set out in that part dealing with the cause of action for malicious prosecution and are in effect referred to and adopted by the pleader for the purpose of that part of the claim relying upon misfeasance in public office. These were summarised, fairly, in the appellant's written submissions and can be further summarised as follows. 56 The allegations that ASIC commissioned three compliance reports in respect of the company's business in March 2000, August 2000, and November 2000. It intentionally withheld them from the company until 21 December 2000 being the scheduled hearing date following the issuing of the notice under the Corporations Law. ASIC did not give the company the opportunity to address the allegation of a failure to comply with the conditions of its licence because it was intent on revoking the company's licence in order to make an example of it. 57 The statement of claim is, with respect, poorly drafted. It is difficult to understand how a pleading could be made to the effect that the company gave evidence at a hearing before ASIC's delegate when it did not. The pleadings suffer from the fact that much of the statement of claim uses the language of the tort of malicious prosecution even when dealing with the claim for misfeasance in public office. So in respect of a finding by ASIC's delegate of a breach of a condition of a licence as set out in paragraph 54 of his reasons and a consequential finding that the company was "a perceived threat to the public interest and to public confidence in the securities market", the statement of claim alleges that ASIC's delegate knew that his act was invalid and unauthorised on the basis that:

[55]

Although the matter was not argued before me, I have doubts that it was not legitimately open for ASIC to seek to protect the public by punishing the plaintiff, although a question of degree might arise. 60 It seems to me clear that, with respect, the Associate Justice did not properly deal with the claim for misfeasance in public office. Her Honour thought that it was enough to defeat the claim that ASIC acted within its power under the Corporations Law, having provided the company with a hearing at which it gave evidence. The real basis of the claim, without the matters that are no longer relied upon because of the decision in Rich, is an allegation that ASIC, through its delegate, acted in bad faith, intending to inflict harm on the company by the course of conduct it adopted up to the time of the hearing and resulting in an unreasonable decision of the delegate to revoke Chapel Road's licence. The allegation is to the effect that ASIC had determined to revoke the licence before the hearing and thereby deprived the company of a chance of meeting the concerns of ASIC and maintaining its licence. Upon that allegation which can be derived from the pleadings, although with some difficulty, an arguable case of misfeasance in public office is made out: Northern Territory v Mengel (1994) 185 CLR 307 at 357 per Brennan J. The allegation was of a lack of procedural fairness, not as a result of any defect in the hearing, but on the basis that the result of the proceedings had been contrived at by ASIC in the manner in which the whole of the investigation and procedure had been conducted and that ASIC acted in the way in order to harm the company by depriving it of its licence so that it could not operate its business.` 61 I am not to be taken as indicating that the case is anything but arguable on the allegations that can be derived from the pleadings. In fact there seems to me to be real difficulties in proving these allegations on the material before me. For example it seems highly unlikely that the appellant could prove, at least from the reasons given by the delegate, that it was not open to him to form the opinion that he did. However I am not dealing with the likelihood of success of the cause of action except in determining that it is not completely hopeless. 62 In light of the failure of the Associate Judge to deal appropriately with the pleadings and upon the arguments that have been put before me in explanation of the allegations, I am of the opinion that the appeal should succeed in part so far as the cause of action for misfeasance in public office is concerned. I believe the appropriate course is to strike out the statement of claim but give leave to Chapel Road to replead the cause of action in misfeasance in public office. 63 I make no order as to costs but the parties have leave to make submissions in writing within 14 days of the date of the judgment as to the order I should make as to costs both before me and the Associate Justice unless such orders can be agreed between the parties.

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Judgment (58 paragraphs)

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Cases Cited (13)

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