Goodman v Australian Securities and Investments Commission

Federal Court of Australia|2004-08-03|Before: Branson J

introduction 1 On 7 July 2004, at the close of the parties' final submissions in this matter, I dismissed the applicant's amended application for an order of review pursuant to the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act'). I indicated that I would publish my reasons for judgment at a later date. These are my reasons for the judgment pronounced by me on 7 July 2004.

factual background 2 The applicant has been a registered company auditor since 1984. 3 On 15 March 2000 the applicant signed a report ('the Report') to the members of The Satellite Group ('TSG') pursuant to subs 309(4) of the Corporations Act 2001 (Cth) ('the Act'). The Report stated, amongst other things, the following: 'We have reviewed the financial statements in the form of Appendix 4B of the Australian Stock Exchange (ASX) Listing Rules, comprising the half‑yearly report and Directors' Declaration of The Satellite Group Limited for the half‑year ended 31 December 1999, but excluding the following sections: (a) material factors affecting the revenues and the expenses of the consolidated entity for the current period (page 13); (b) compliance statement (pages 14 and 15). … Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. A review is limited primarily to inquiries of the entity's personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an opinion. … Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half‑year financial statements of The Satellite Group Limited as defined in the scope section are not in accordance with: (a) the Corporations Law, including: (i) giving a true and fair view of the consolidated entity's financial position as at 31 December 1999 and of its performance for the half-year ended on that date; and (ii) complying with Accounting Standard AASB 1029: Half‑Year Accounts and Consolidated Accounts and the Corporations Regulations; and (b) other mandatory professional reporting requirements and ASX Listing Rules as they relate to Appendix 4B.' 4 On or about 8 June 2004 the first respondent ('ASIC') applied to the second respondent ('the Board') for the applicant to be dealt with under s 1292 of the Act. ASIC provided to the applicant and to the Board a statement of facts and contentions ('the Statement'). ASIC sought an order from the Board cancelling the applicant's registration as a company auditor on the basis that the applicant, within the meaning of par 1292(1)(d)(i) of the Act, had failed to carry out or perform adequately the duties of an auditor in relation to the review to which the Report related. 5 Correspondence ensued between the applicant's solicitors and the solicitors for ASIC. The applicant's solicitors argued, in effect, that the applicant's review of TSG's financial report for the half‑year ended 31 December 1999 did not call for him to carry out or perform the duties of an auditor. ASIC amended the Statement on two occasions. Paragraph 13 of the final version of the Statement reads: 'ASIC contends that within the meaning of: (i) paragraph 1292(1)(d)(i) of the Act; and/or alternatively (ii) paragraph 1292(1)(d)(ii) of the Act; RDG failed, in relation to the review of TSG's financial report for the half‑year ended 31 December 1999, to carry out or perform adequately and properly: (i) the duties of an auditor; and/or (ii) any duties or functions required by an Australian law to be carried out by an auditor, namely the review of half‑yearly reports pursuant to sub‑section 302(b) [Annexure 51] of the Act and/or the preparation of a report pursuant to sub‑sections 302(c) [Annexure 51] and 309(4) [Annexure 51] of the Act;' 6 The particulars of the above contention provided by the Statement reveal that ASIC's application to the Board is wholly based on alleged failures by the applicant to comply with auditing standards prepared by the Auditing and Assurance Standards Board of the Australian Accounting Research Foundation and issued by the Australian Accounting Research Foundation on behalf of the Australian Society of Certified Practising Accountants and the Institute of Chartered Accountants in Australia ('Auditing Standards'). 7 On 24 June 2004 the Board heard argument from the applicant and ASIC respectively on the following two applications made by the applicant: '1 That the Board dismiss or decline to deal further with the application of ASIC against Mr Goodman on the ground that the application (before or after its amendment) does not allege any failure on the part of Mr Goodman within the meaning of either s 1292(1)(d)(i) or (ii) of the Corporations Act. 2 In the event that the Board declines the above application and decides to hear the application of ASIC, the Board adjourn the hearing on 19 July 2004 to allow Mr Goodman to apply to the Federal Court upon his application to make and prosecute such application with due expedition.' 8 On 25 June 2004 the Board advised the applicant and ASIC that it had ruled as follows: '1 The application of ASIC against Mr Goodman comes within the terms of s1292(1)(d)(i) of the Corporations Act ("the Act") and for that reason the first application of Mr Goodman is refused. In view of the fact that the Board is of the view that the application comes within the terms of s1292(1)(d)(i), the Board declines to rule upon whether the application comes within the terms of s1292(1)(d)(ii). 2 Having refused Mr Goodman's first application, the Board refuses the application to adjourn the scheduled hearing, which will commence at 10am on 19 July 2004.'

The Board published written reasons for its above rulings on 28 June 2004.

the application 9 Although the amended application to the Court ('the application') formally seeks an order of review in respect of the decision of ASIC to apply to the Board to have the applicant's registration as an auditor cancelled pursuant to s 1292 of the Act, the claim for an order of review in respect of ASIC's decision was not pressed at the hearing. 10 The decisions in respect of which claims for orders of review were pressed were: 'The decision, conduct, or action of the Second Respondent on or about 28 June 2004 that it has jurisdiction to hear and determine the Application under Section 1292(1)(d)(i) of the Act (the First Ruling)'; and 'The decision, conduct or action of the Second Respondent on or about 28 June 2004 to conduct a hearing on 19 July 2004 in respect of the Application pursuant to Section 216 of the Australian Securities and Investment Commission Act 2001 (Cth) (the Second Ruling).' 11 The grounds of the application are formulated as follows: '1 The Second Respondent does not have jurisdiction under Section 1292(1)(d)(i) or (ii) of the Act to receive, or conduct a hearing in respect of, the Application because there is no allegation in the Application of a failure to carry out or perform adequately and properly any duties within the meaning of Section 1292(1)(d)(i) or (ii) of the Act. 2 The powers of the Second Respondent in respect of a review conducted by an auditor pursuant to Section 309(4) of the Act are contained within Section 1292(1)(d)(ii) of the Act not Section 1292(1)(d)(i) and only apply to duties or functions required by an Australian law to be carried out or performed by a registered company auditor‑viz, those required by Section 309(4) of the Act in respect of the review. 3 The Application contends that the Applicant has breached paragraphs .07 and .24 of Auditing Standard AUS902, when the Second Respondent does not have jurisdiction to exercise any of its powers in respect of such an allegation because the duty to comply with Auditing Standard AUS 902 is not a duty required by an Australian law to be performed by a registered company auditor within the meaning of Section 1292(1)(d)(ii) of the Act. 4 In the premises, the making of the Application by the First Respondent involves it in an error of law and the conduct of any hearing in respect of the Application by the Second Respondent is beyond the powers and functions conferred by Section 1292(1)(d) of the Act on the Second Respondent.' 12 The relief sought by the application includes orders quashing or setting aside the Board's rulings and a declaration in the following terms: 'A declaration that the allegations against the Applicant in the Amended Statement of Facts and Contentions are incapable of amounting to a failure to carry out or perform adequately and properly a duty or function required by Section 309(4) of the Act to be carried out or performed by a registered company auditor.'

consideration 13 It is appropriate to give consideration first to the sources of the Court's jurisdiction and power to grant the relief sought by the application. So far as the application is made under the ADJR Act, the Court's jurisdiction is dependent upon the applicant being aggrieved by a decision to which that Act applies (s 5) or by conduct engaged in, or proposed to be engaged in, for the purpose of making a decision to which that Act applies (s 6). The powers of the Court on an application for an order of review under the ADJR Act derive principally from s 16 of that Act. Section 16 gives the Court a wide discretion as to the appropriate form of relief (Attorney‑General (NT) v Kearney (1990) 94 ALR 488 at 493 (FC)). The section also gives the Court a discretion to refuse relief even where an error of law has been demonstrated (Young v Wicks (1986) 13 FCR 85; Reid v Australian Telecommunications Commission (1988) 14 ALD 554). The Court's discretion must, of course, be exercised judicially. 14 Section 21 of the Federal Court of Australia Act 1976 (Cth) gives the Court the power, in relation to any matter in which it has original jurisdiction, to make binding declarations of right. Should the Court's original jurisdiction under the ADJR Act not support the applicant's claim for a declaration, its jurisdiction under s 39B(1A)(c) of the Judiciary Act 1903 (Cth) in respect of matters arising under a law made by the Parliament other than a criminal matter will do so. The power vested in the Court by s 21 of the Federal Court of Australia Act is also a discretionary power. 15 The applicant's case for the relief sought by the application calls for consideration of the proper construction of subs 1292(1) of the Act. Subsection 1292(1) provides: '(1) The Board may, if it is satisfied on an application by ASIC or APRA for a person who is registered as an auditor to be dealt with under this section that, before, at or after the commencement of this section: (a) the person has: (i) contravened section 1288; or (ii) ceased to be resident in Australia; or (b) the person has failed, whether in or outside this jurisdiction, to carry out or perform adequately and properly: (i) the duties of an auditor; or (ii) any duties or functions required by an Australian law to be carried out or performed by a registered company auditor; or is otherwise not a fit and proper person to remain registered as an auditor; by order, cancel, or suspend for a specified period, the registration of the person as an auditor.' 16 The case of the applicant, as initially put, was that the Board has no jurisdiction in respect of ASIC's application for the applicant to be dealt with under s 1292 of the Act. The applicant contended first, that within the meaning of par 1292(1)(b)(i) of the Act, in reviewing TSG's financial report for the half‑year ended 31 December 1999 he was not carrying out or performing the duties of an auditor but rather carrying out or performing a duty or function required by an Australian law to be carried out or performed by a registered company auditor. The applicant's second contention was that, in considering whether the applicant carried out or performed adequately and properly the duty or function of reviewing TSG's financial report for the half‑year ended 31 December 1999, the Board is not entitled to consider 'breaches of mere non‑statutory auditing standards set by professions'. 17 The case of the applicant as outlined above does not constitute a challenge to the jurisdiction of the Board to receive an application by ASIC for the applicant to be dealt with under s 1292 of the Act. The Board is under a duty to receive, and to consider, any application by ASIC for a person who is registered as an auditor to be dealt with under the section. 18 Having received and considered the application the Board was required to determine whether, were the facts alleged in the Statement established at a hearing, it would seriously consider dealing with the applicant under subs 1292(1) or subs 1292(9) (see McLachlan v Australian Securities Commission (1998) 52 ALD 298 at 304 per Finn J; Story v National Companies and Securities Commission (1988) 6 ACLC 560 at 573). Unless the Board determined that it would in such circumstances seriously consider dealing with the applicant under s 1292, the principles of good administration and fair dealing, which are to be found by implication within the statutory framework pursuant to which the Board operates, would dictate that the Board not conduct a hearing on the application of ASIC. 19 However, the Board did not at the time that it determined to proceed to a hearing, make a decision that is reviewable under the ADJR Act (see Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 337; McLachlan v Australian Securities Commission at 305). The determination to proceed to a hearing did not, of itself, affect any substantive rights or interests of the applicant. It was merely part of a process that might lead to a decision that affects the applicant's substantive rights (Winter v Australian Securities Commission (1995) 56 FCR 107 at 114). 20 The applicant's claim for an order of review under the ADJR Act in respect of the Board's determination to conduct a hearing in respect of the application made to it by ASIC must fail. 21 Even had I taken a different view, I would, in the exercise of my discretion, have refused to quash the Board's ruling that it has jurisdiction to hear and determine the application. First, even if it be assumed that the Board ought to have found that it would be inappropriate to conduct a hearing in respect of ASIC's application, the error made by the Board would not, in my view, have been an error as to its jurisdiction but rather than error within its jurisdiction. The Act appears to me to disclose an intention that the task of determining whether to conduct a hearing under s 1294 is a task within the jurisdiction of the Board (Re Australian Workers' Union; Ex parte Construction, Forestry, Mining and Energy Union (2002) 120 FCR 527 per Gray and Moore JJ at [52]). Secondly, the contention of the applicant that the Board does not have jurisdiction to hear and determine ASIC's application is based on alleged deficiencies in ASIC's application. Those alleged deficiencies relate solely to the particulars provided of a contention made by ASIC that the applicant failed to carry out or perform adequately and properly the duties of an auditor or, in the alternative, a duty or function required by an Australian law to be carried out or performed by a registered company auditor. It is within the power of the Board to allow the particulars provided by ASIC to be further amended. It has not been established that the particulars could not be amended to overcome the alleged deficiencies upon which the applicant places reliance. The undesirability of fragmenting the processes of the Board is a factor that would have weighed heavily in favour of declining relief by way of judicial review at this stage. 22 The alternative relief sought by the applicant was a declaration that the allegations made against the applicant by ASIC are incapable of amounting to a failure to carry out or perform adequately and properly a duty or function required by s 309(4) of the Act to be carried out or performed by a registered company auditor. 23 It is convenient to set out the complete terms of s 309: 'Audit of financial report (1) An auditor who audits the financial report for a half-year must report to members on whether the auditor is of the opinion that the financial report is in accordance with this Act, including: (a) section 304 (compliance with accounting standards); and (b) section 305 (true and fair view). If not of that opinion, the auditor's report must say why. (2) If the auditor is of the opinion that the financial report does not comply with an accounting standard, the auditor's report must, to the extent that it is practicable to do so, quantify the effect that non-compliance has on the financial report. If it is not practicable to quantify the effect fully, the report must say why. (3) The auditor's report must describe: (a) any defect or irregularity in the financial report; and (b) any deficiency, failure or shortcoming in respect of the matters referred to in paragraph 307(b), (c) or (d). Review of financial report (4) An auditor who reviews the financial report for a half-year must report to members on whether the auditor became aware of any matter in the course of the review that makes the auditor believe that the financial report does not comply with Division 2. (5) A report under subsection (4) must: (a) describe any matter referred to in subsection (4); and (b) say why that matter makes the auditor believe that the financial report does not comply with Division 2. Report to specify day made (6) A report under subsection (1) or (4) must specify the date on which it is made.' 24 The Statement contends that, in effect, in reviewing TSG's financial report for the half‑year ended 31 December 1999, the applicant was carrying out or performing:

(a) the duties of an auditor; or (b) the duties of an auditor and a duty or function required by the Act to be carried out or performed by a registered company auditor; or (c) a duty or function required by the Act to be carried out or performed by a registered company auditor.

25 The importance that the applicant attaches to the distinction between carrying out or performing the duties of an auditor and carrying out or performing the duty or function required to be carried out by s 309(4) of the Act is that, as he contends, the duty to review the half‑year financial report is a duty of a very limited nature. In particular, the applicant contends that the duty to review does not call for compliance with non‑statutory standards such as Auditing Standards. 26 For present purposes I am willing to assume, as the applicant contends, that in reviewing TSG's half‑year financial report under s 309(4) of the Act, the applicant was not carrying out or performing the duties of an auditor but rather he was carrying out or performing a duty or function required by subs 309(4) to be carried out or performed by a registered company auditor. The question of whether the applicant failed to carry out or perform adequately and properly that duty or function is not a pure question of law. The words 'adequately' and 'properly' incorporate notions of judgment. The relevant judgments call for consideration to be given to accepted professional standards (see John Vouris, Re; Epromotions Pty Ltd and Relectronic‑Remech Pty Ltd (in Liq) [2003] NSWSC 702 at [103]). The task of determining the relevant accepted professional standards is a task within the expertise of the Board. The accepted professional standards may be found by the Board to be set by, or alternatively reflected in, published Auditing Standards - notwithstanding that the Auditing Standards have no direct statutory significance. 27 For the above reasons I reject the contention of the applicant that, in considering whether the applicant carried out or performed adequately and properly the duty or function of reviewing TSG's financial report for the half‑year ended 31 December 1999, the Board is not entitled to consider Auditing Standards. 28 The applicant's claim for a declaration that the allegations in the Statement are incapable of amounting to a failure to carry out or perform adequately and properly a duty or function required by s 309(4) of the Act to be carried out or performed by a registered company auditor must, therefore, fail. 29 For the above reasons the application was dismissed on 7 July 2004. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Counsel for the First Respondent: S R Donaldson SC

Solicitor for the First Respondent: Australian Securities and Investments Commission

Solicitor for the Second Respondent: Australian Government Solicitor

Date of Publication of Reasons: 3 August 2003

Australian Auditing Standards Administrative Decisions (Judicial Review) Act 1977(Cth)

Australian Securities and Investment Commission Act 2001(Cth)

At a glance

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Judgment (11 paragraphs)

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Legislation Cited (6)

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