Coogans v MacDonald

IN THE FEDERAL COURT OF AUSTRALIA) QUEENSLAND DISTRICT REGISTRY ) No. QG 199 of 1995 GENERAL DIVISION ) BETWEEN: AUSTRALIAN SECURITIES COMMISSION Applicant AND: MAXWELL ALFRED KIPPE First Respondent STEPHANIE A FORGIE Second Respondent CORAM: von DOUSSA, COOPER & TAMBERLIN JJ PLACE: BRISBANE DATED: 28 JUNE 1996 MINUTE OF ORDERS THE COURT:

1. Orders that the application be granted
2. Orders that the decision of the Deputy President of the Administrative Appeals Tribunal be set aside.
3. Declares that the proceeding for a banning order under s829 of the Corporations Law is not a proceeding for the imposition of a penalty within s68(3) of the Australian Securities Commission Act 1989 (Cth).
4. Orders that the matter be remitted to the Administrative Appeals Tribunal for determination in accordance with law.
5. Orders that the first respondent pay the applicant's cost of this application. NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) QUEENSLAND DISTRICT REGISTRY ) No. QG 199 OF 1995 GENERAL DIVISION ) BETWEEN: AUSTRALIAN SECURITIES COMMISSION Applicant AND: MAXWELL ALFRED KIPPE First Respondent STEPHANIE A FORGIE Second Respondent CORAM: von DOUSSA, COOPER and TAMBERLIN JJ HEARING: BRISBANE DATED: 26 JUNE 1996 REASONS FOR JUDGMENT THE COURT: The first respondent Maxwell Kippe ("Kippe") was examined under the provisions of s19 of the Australia Securities Commission Act 1989 (Cth) ("ASC Act") on 15 September 1994. At the examination Kippe claimed privilege, on the advice of his legal representative, under s68(2) of the ASC Act. The ASC issued a Notice of Hearing under s837 of The Corporations Law ("the Law") and a Notice to have Statements Admitted into Evidence under s79 of the ASC Act. When these Notices were received, the legal representative of Kippe objected to admission into evidence of "any statement made by him;... and any document produced by him at the examination conducted by the Australian Securities Commission ... on the 15th of September 1994 following each claim of privilege made by him ..." The question raised in this application for review, is a short but important one. It is whether under s68(3)(b) of the ASC Act, a proceeding for a banning order under s829 of the Law is properly characterised as "a proceeding for the imposition of a penalty". The relevant statutory provisions are as follows: The ASC Act: "13(1)The Commission may make such investigation as it thinks expedient for the due administration of a national scheme law of this jurisdiction where it has reason to suspect that there may have been committed: (a) a contravention of a national scheme law; or (b) a contravention of a law of the Commonwealth or of a State or Territory, ... ... 19(1) This section applies where the Commission, on reasonable grounds, suspects or believes that a person can give information relevant to a matter that it is investigating, or is to investigate, under Division 1. (2) The Commission may, by written notice in the prescribed form given to the person, require the person: (a) to give to the Commission all reasonable assistance in connection with the investigation; and (b) to appear before a specified member or staff member for examination on oath and to answer questions. ... 68(1) For the purposes of this Part, of Division 3 of Part 10, and of Division 2 of Part 11, it is not a reasonable excuse for a person to refuse or fail: (a) to give information; (b) to sign a record; or (c) to produce a book; in accordance with a requirement made of the person, that the information, signing the record or production of the book, as the case may be, might tend to incriminate the person or make the person liable to a penalty. ... (3) The statement, or the fact that the person has signed the record, as the case may be, is not admissible in evidence against the person in: (a) a criminal proceeding; or (b) a proceeding for the imposition of a penalty; other than a proceeding in respect of: (c) in the case of the making of a statement - the falsity of the statement; or (d) in the case of the signing of a record - the falsity of any statement contained in the record." (Emphasis added).

The Law: "829 Subject to section 837, the Commission may make a banning order against a natural person (other than a licensee) if: (a) he or she becomes an insolvent under administration; (b) he or she is convicted of serious fraud; (c) he or she becomes incapable, through mental or physical incapacity, of managing his or her affairs; (d) he or she contravenes a securities law; (e) the Commission has reason to believe that he or she is not of good fame and character; (f) the Commission has reason to believe that he or she has not performed efficiently, honestly and fairly the duties of: (i) a representative of a dealer; or (ii) a representative of an investment adviser; or (g) the Commission has reason to believe that he or she will not perform efficiently, honestly and fairly the duties of: (i) a representative of a dealer; or (ii)a representative of an investment adviser. ... 830(1) Where this Division empowers the Commission to make a banning order against a person, the Commission may, by written order, prohibit the person:

(a) in any case - permanently; or (b) except where the Commission is empowered by virtue of paragraph 828(c) or 829(e) to make the order - for a specified period; from doing an act as: (c) a representative of a dealer; (d) a representative of an investment adviser; or (e) a representative of a dealer or of an investment adviser; whichever the order specifies. (2) The Commission shall not vary or revoke a banning order except under section 831, 832 or 833. ... 835 A person shall not contravene a banning order relating to the person. ..." The question comes before this Court by way of an application for judicial review of the answers given to a preliminary question by Ms Forgie, who sat as Deputy President of the Administrative Appeals Tribunal (the "AAT"). The AAT determined that: "1. a decision to make a banning order under section 829 of the Corporations Law 19 is a proceeding for the imposition of a penalty within the meaning of sub-section 68(3) of the Australian Securities Commission Act 1989;

2. statements which the applicant made in his examination held on 15 September, 1994 under Part 3 of the Australian Securities Commission Act 1989 and which he claimed in accordance with sub-section 68(2) of the ASC Act might tend to incriminate him or make him liable to a penalty are not admissible in evidence against him in the Commission's consideration of whether it should make a banning order;
3. the applicant's signing of the record of his examination held on 15 September, 1994 under Part 3 of the Australian Securities Commission Act 1989 and which he claimed in accordance with sub-section 68(2) of the ASC Act might tend to incriminate him or make him liable to a penalty is not admissible in evidence against him in the commission's consideration of whether it should make a banning order;
4. the statements and the record are not admissible in proceedings for review of the respondent's decision to make a banning order against the applicant..." Applicant's Submissions The applicant makes the following submissions:
5. Section 68(3)(b) is defined by the character of the proceedings and not its result or effect and therefore: (a) a proceeding for the imposition of a penalty does not cease to be a proceeding for such an imposition if a penalty does not result; (b) use of the word "for" requires that to properly characterise a proceeding as within the subsection, it must have the object or purpose of imposing a penalty; (c) the subsection refers to proceedings which are "directed" to impose a penalty but which are not criminal in nature.
6. Section 68(1) draws no distinction between purpose and effect. It has the effect of removing the privilege against self-incrimination subject to the exceptions in subsection (3).
7. A banning order is made in order to protect the public.
8. Even if one adopts the view that s68(3)(b) can be characterised by reference to the effect of the proceedings that does not make it a proceeding to impose penalty. Part 7.3, Division 5 of the Law in which s829 is found, is headed, "Exclusion of Persons from the Securities Industry". This supports an inference that a proceeding in which a banning order is sought, is not directed at punishment of the person, but rather to remove that person from the occupation to protect the public.
9. In its ordinary meaning the word "penalty" connotes something in the nature of a disadvantage imposed by way of punishment, deprivation, or disability in respect of a prohibited act or omission.

6. The Deputy President erred in determining that the nature of the section was to impose a penalty in the form of a disqualification, even though its purpose was not punitive.
7. The authorities establish that where the predominant purpose or provision is protective and not punitive, the section should be characterised on the basis of its predominant purpose. The adverse impact that it will also have an on the individual simply means that the section may have a dual character. Respondent's Submissions
8. The banning order sought to be imposed by the ASC is a penalty both in practical and legal terms. This is because its direct effect is to restrict Kippe's livelihood, by preventing him from engaging in a business in which he could otherwise lawfully engage.
9. Section 68(3) of the Law draws a distinction between the character and effect of the proceedings. The characterisation must be determined by having regard to the effect of the order on Kippe, not by an examination of the purpose of the statute.

3. The evident purpose of s68(3) of the Law, is to protect against the prejudice that would otherwise result from the abrogation of the common law privilege against self-incrimination and self-penalisation. This privilege extends to non-corporeal penalties such as disqualification.

The Joint Select Committee Report The Joint Select Committee on Corporations Legislation was established to report on the "Corporations Legislation package" , which comprised 16 Bills including the Bill which became the ASC Act. One of its tasks was to report on the adequacy of the proposed provisions to ensure sufficient protection for investors in companies and in the securities and futures markets. Chapter 4 of the report of that Committee is headed "Investigation and Information Gathering Powers of the ASC". Paragraphs 4.59 and 4.60 of the report relevantly read: "4.59 The Committee recognises that the privilege against self-incrimination is a firmly established, and important rule of the common law which acts to prevent a person from being compelled to incriminate themselves (sic). However, it must equally be recognised that abrogation of the rule by statute is an important and valuable power of the legislature which it can use to protect the public interest. The Committee is acutely aware that the abrogation of the privilege by the legislature must be treated with extreme caution; an approach regularly confirmed in the reports of the Senate Scrutiny of Bills Committee. 4.60 The Committee believes that the balance that must be struck in the end case is enactment of a provision which will allow the ASC maximum effectiveness in achieving its investigatory function. Equally, such a provision as subclause 68(3) should not deny - any more than is demonstrably necessary - the protection that has always been enjoyed in Australia. One of the purposes for establishing an ASC, is to allow investigation of possible breaches of the national scheme laws. The Committee believes that subclause 68(3) will not unnecessarily or unacceptably act to abrogate the privilege against self-incrimination, if it were amended to apply only to statements made by a person, and not to documents nor to any information, document, or other thing obtained as a direct or indirect consequence of the person making the statement." The Committee's observations reflect an awareness of the need to strike a balance between competing considerations with respect to the need for effective investigation and the protection of the public interest on the one hand, and the need to protect persons against self-incrimination, on the other hand. The Case Law In support of the submission that disqualification amounts to a "penalty", counsel for Kippe refers to the decision of the Scottish High Court of Justiciary in Coogans v Macdonald (1954) SLT 279. In that case the Court held that disqualification from holding or obtaining a driving licence under the Road Traffic Act 1930, was a "penalty" and that a statutory notice informing the accused of his liability to such disqualification, in the event of conviction, was a condition precedent to the power of the Court to impose the disqualification. The notice given was held inadequate. The disqualification imposed in the Court below was quashed. Lord Justice-General Cooper gave a wide interpretation to the relevant provision and said at 281: "Moreover, I consider that the word 'penalty' falls to be read in a wide popular sense, which is the sense the recipient of such a notice would naturally give it; and I select two definitions adequately conveying that sense..... 'Penalty in the broad sense may be defined as any suffering in person or property by way of forfeiture, deprivation or disability, imposed as a punishment by law or judicial authority in respect of ... an act prohibited by statute.' The Oxford Dictionary echoes the same wide conception by referring to "a loss, disability or disadvantage of some kind ... fixed by law for some offence". If, as I think, this is the sense in which the Act of 1949 must be read, it necessarily follows that a disqualification from holding or applying for a licence imposed on conviction of an offence under the Road Traffic Acts is a "penalty" liability to which must be included in every suitable case in a statutory notice. In every case the person against whom such an order is made must suffer at least a theoretical "disability" ... and in the common case of a person who earns his living as a driver of motor vehicles, the disability is normally very grave, and is notoriously apprehended by many accused persons more keenly than a fine or even imprisonment." (Emphasis added)

A similar conclusion was reached by Lord Justices Thomson, Russell, Carmont and Patrick. That decision is, however, distinguishable from the present case in that it concerned an omission in a statutory notice, in circumstances where, as Lord Justice Thomson points out, it is desirable that a person should be specifically informed as to all consequences (including suspension from driving), which might flow from conviction for a criminal offence. In the present case, there is no suggestion of inadequate notice, nor of any conviction for a criminal offence. Counsel for Kippe also referred to the High Court decision in Police Service Board v Morris (1985) 156 CLR 397. That case involved a charge against a police officer of having disobeyed a lawful order, contrary to the Police Regulations 1957 (Vict) by refusing to answer questions when ordered to do so during the course of an investigation into the performance of duties. The charge against the officer was found proved. Section 88(1) of the Police Regulation Act 1958 (Vict) made it an offence for a member of the Force to breach the regulations. Gibbs CJ at 403 said: "There is an obvious distinction between criminal offences and breaches of discipline and it is necessary to insist upon that distinction for some purposes:... Nevertheless, although the penalties provided by s88 are disciplinary penalties, they are nonetheless penalties, and it is old law, confirmed by modern authority, that a person cannot be compelled to answer a question whenever an answer would tend to expose him to 'any kind of punishment' - 'anything in the nature of a penalty.' .... Moreover, it is now accepted that the privilege is capable of application in non-judicial proceedings ..." His Honour concluded, that an order to answer questions of the type there under consideration was plainly lawful and that the character and object of the regulations provided sufficient indication that it was not intended that an officer could refuse to answer on the ground that his answer might expose him to penalties for breach of duty. This was said to arise from the necessity for a disciplined police force. A similar view was taken by three other members of the Court. Murphy J dissented. Brennan J at 412, in deciding that privilege had been impliedly abrogated, strongly emphasised the necessity to preserve public confidence in the capacity of the police force to effectively protect the community. The statutory provisions in that case, of course, involved an offence under the Police Regulation Act 1958 (Vict) in a context where, unlike the present case, there has been no express statutory abrogation of the privilege against self-incrimination. The Court held that the privilege was abrogated by implication. These elements distinguish that decision from the present case where the proceeding for a banning order did not give rise to an offence and where s68(1) of the ASC specifically abrogates the general privilege subject to exceptions. Reference was also made to the decision of Gummow J in Comptroller-General of Customs v Disciplinary Appeal Committee (1992) 35 FCR 466. In that case his Honour held that the privilege against self-incrimination applied to disciplinary action under the Public Service Act 1922 (Cth), unless qualified by statute expressly or by necessary implication. He applied the decision in Morris (supra). In the course of his judgment, his Honour (at 474) pointed out that despite the "administrative" nature of proceedings under the Public Service Act (Cth), the submissions of both parties proceeded on the footing that if the common law privilege existed and had not been relevantly abrogated by the legislation, it would have been open to the second respondent to rely on it. His Honour concluded that the general privilege had not been abrogated by implication. His Honour, at 475, referred to Morris (supra) as establishing that: "... the 'penalties' with which the privilege is concerned extend to disciplinary action such as that provided for in section 62(6) of the Public Service Act." That section provided that if the person holding the inquiry was of opinion that the officer charged had failed to fulfil his duty as an officer he could direct that action be taken. This action included making an order that a sum of up to $500 be deducted from the salary of the officer. Alternatively, that he or she could be transferred, or dismissed from the public service. Again, this decision is different from the present case insofar as it was concerned with a different statutory regime and insofar as it relied on the Morris case where the relevant provision created an offence. In the instant case there is no question of any exaction of money as a sanction. The Commission referred to a number of authorities in which a distinction is drawn between provisions designed to protect the public interest and those which are properly characterised as punitive in nature. The principle is succinctly stated by Bowen CJ in Equity, in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205. That case concerned s122 of the Companies Act 1961 (NSW), which provided that where a person had been convicted of an offence in connection with the promotion, formation or management of a corporation or of any offence involving fraud or dishonesty, punishable with imprisonment, it was an offence for such person to act as a director or promoter of a company without the leave of the Court. At 205 his Honour said:

"The policy to which s122 gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or to take part in the management of a company. The section is not punitive. It is designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used ... in a manner which is contrary to proper commercial standards." (Emphasis added) It is also important to note that by subs1(2) of the ASC Act, the ASC is enjoined to strive: " ..... (b) to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors; ...." (Emphasis added) Subsection 1(3) provides that the ASC Act has effect and is to be interpreted according to its objects and to the duties of the Commission. The distinction between "punitive" and "protective" statutory provisions is well settled and has been applied in a number of cases. See for example Friend v Corporate Affairs Commission (1989) 7 ACLC 106 at 115; Story v NCSC (1988) 6 ACLC 560 at 581; Nicholas v Commissioner for Corporate Affairs (1987) 5 ACLC 258 at 265 affirmed on appeal (1987) 5 ACLC 673 at 679-681; Flavel v Borrett and Haig (1991) SASR 452 at 458-9, Quinn v Australian Securities Commission (1994) 12 ACLC 412 at 417-419 (AAT). Of course, in one sense it might be said that many statutory provisions which have the purpose of protecting the public, will seek to achieve the protection by imposing a disability or disqualification so that it might be suggested that the provision has a dual purpose. However, the authorities support the view that even where this is so the Court will look to the predominant purpose of the provision under consideration. See Nicholas (supra) at 265; Re Network Agencies International Ltd (in liq); Johnston v Edwards (1991) 5 NZCLC 67,535 at 67,538. In the present case we do not think that the provision has a dual purpose. There is also a line of authority in relation to professional disciplinary matters which draws a clear distinction between disciplinary orders, designed to protect public confidence and the public interest and orders which might be characterised as punitive. See for example, New South Wales Bar Association v Evatt (1968) 117 CLR 177 at 183-184; Clyne v New South Wales Bar Association (1960) 104 CLR 186 at 201-202 and Ziems v The Prothonotary of The Supreme Court of New South Wales (1957) 97 CLR 279 at 285-287. Underlying these cases is the principle that public confidence and the protection of the public are the primary considerations in characterising the orders. Reasoning A proceeding which has as its object the imposition of a penalty and which may result in the imposition of such a penalty is penal in nature (Naismith v McGovern (1953) 90 CLR 336 at 341; R v Associated Northern Collieries (1910) 11 CLR 738 at 742-743; Derby Corporation v Derbyshire County Council [1897] AC 550 at 552). Proceedings to recover or enforce such a penalty may be either civil or criminal proceedings depending upon the nature of the procedure used to initiate them (see generally Sir Frederick Jordon, Selected Legal Papers, Legal books (1983) Pt 3, "General Principles of the Administration of Justice" at pp 28-29). When the proceeding to recover a penalty is a civil proceeding it remains a civil proceeding notwithstanding that it is penal in nature (R v Associated Northern Collieries at 742; Naismith v McGovern at 340). Accordingly, subject to any statutory enactment, the common law privilege against self-incrimination has a relevant operation in civil proceedings which are penal in nature (eg civil proceedings to recover a penalty of which R v Associated Northern Collieries and Naismith v McGovern are examples). Against this common law background s68(3)(a) and s68(3)(b) of the ASC Act prima facie do no more than recognise that "a proceeding for the imposition of a penalty" includes a civil proceeding the object of which is the imposition of a penalty (s68(3)(b)) in contradistinction to a criminal proceeding which of its nature is penal and has as its object the imposition of a penalty (s68(3)(a)). At the outset, it is important to note that s68(1) is a general abrogation of the privilege for certain purposes and that the relevant exception to this general statutory abrogation is formulated in very specific language, namely that the proceeding must be properly characterised as being for the imposition of a penalty. Section 68(3)(b) uses the language of purpose. The question posed is whether the proceeding for a banning order is, "a proceeding for the imposition of a penalty". Another important but not controlling consideration is that if an unduly wide interpretation is given to the expression then the efficacy of the Act will be diminished. In many cases the only cogent evidence may be that elicited under claim of privilege. However, in the final analysis it is necessary to closely examine the language of the section. If the question is asked as to whether the purpose of a proceeding which may result in a banning order is for the imposition of a penalty, the short answer is that it is not for such a purpose. Although a banning order has the consequence of excluding an individual from acting as a representative of a dealer or investment adviser, the making of such an order is not designed to punish or impose a penalty on that person for an offence or contravention of any norm of conduct. Moreover, the existence of conduct which may justify a banning order does not itself give rise to an offence. An offence is constituted by s835 and only arises where there is contravention of an order. That the section is not intended to be punitive is made apparent by having regard to the range of specified grounds which must be established before such an order is made. These include standard non-blameworthy grounds, for example, becoming "an insolvent under administration" and becoming "incapable, through mental or physical incapacity, of managing his or her affairs". As the question under consideration is one of interpretation, it cannot be said that the character of the subsection changes depending on the particular ground upon which the order is sought. Nor, can it be said in such cases that the purpose of a banning order is to punish or penalise a person who becomes insolvent or incapable. Consideration of the grounds on which a banning order is made do not support the suggestion that the banning order is of a penal nature and certainly is not one for the imposition of a penalty. Rather, the grounds set out in s829 clearly point to the conclusion that it is properly characterised as protective. In cases of ambiguity or uncertainty, it is permissible to consider the stated functions of the ASC. The functions of the ASC include the maintenance of investor confidence in the securities and futures markets by ensuring adequate protection for such investors. This clearly indicates that one of the underlying purposes of the Act is protective in nature. As indicated earlier, in cases of ambiguity, the Act should be interpreted having regard to this function. See subsection 1(3). If there is ambiguity in the present case, such an approach supports the view that s68 is protective and preventive in nature. The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein. Chapter 7.3 of the Law, the legislative context in which s829 is found, is concerned with persons engaged in the securities industry. Division 5 is concerned with the exclusion of persons from participation in the industry and to preserve the effective operation of the industry. The broad range of discretionary remedies supports the view that the purpose of the provision is to protect the operation of the industry by moulding the remedy to the particular circumstances of the individual case under consideration. A proceeding which may result in a banning order under s829, in our view, is to be characterised, consistently with the decisions referred to above, as "protective" in purpose and not as one for the imposition of a penalty. It unduly strains the language enacted by parliament, to suggest that proceedings directed to the making of a banning order for the reasons specified in s68(1) of the ASC Act, should be described as being for the imposition of a penalty. In the light of the above considerations, our conclusion is that a proceeding for the making of a banning order under s829 of the Law, is not a proceeding for the imposition of a penalty within s68(3)(b) of the ASC Law. The appropriate orders are:

1. That the application be granted.
2. That the decision of the Deputy President of the AAT be set aside. 3 That it is declared that the proceeding for a banning order under s829 of the Law is not a proceeding for the imposition of a penalty within s68(3)(b) of the ASC Law.
3. That the matter be remitted to the AAT for determination in accordance with law.

5. That the first respondent pay the applicant's cost of this application. I certify that this and the preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of the Court. Associate: Date: 28 June 1996 Counsel for Applicant: Mr P H Morrison QC Mr D M McShane Counsel for First Respondent: Mr W Sofronoff QC Mr D K Smith Solicitor for First Respondent: John Neive O'Donoghue Date of Hearing: 2 May 1996 Date Judgment Delivered: 28 June 1996