Second named Defendant: Dobson Mitchell & Allport

Third named Defendant: Australian Securities and Investments Commission

Fourth & Fifth named Defendants: Butler McIntyre & Butler

1 I have before me separate applications by the defendants in this action that they be granted summary judgment against the plaintiffs or, in the alternative, that the plaintiffs' statement of claim dated 19 March 1999 be struck out. At the hearing, the plaintiffs were granted leave to deliver an amended statement of claim and it was this document, filed in the Court on 22 June 1999 upon which the plaintiffs' claim for relief was based and the matter debated. In essence, it was submitted that the plaintiffs' claims against all the defendants were frivolous and vexatious and, having no prospect of success, ought to be struck out as an abuse of the process of the Court.

2 Unfortunately, neither of the plaintiffs is represented by a legal practitioner and the statement of claim upon which they rely has been inexpertly drawn. It is prolix, argumentative and confusing. Instead of confining itself to stating the facts upon which the causes of action against the defendants are based, it contains a great deal of material which is or may constitute evidence by which the plaintiffs hope to prove their cases. It has been difficult to disentangle the mixture of allegations made and to ascertain with any precision what causes of action they have.

3 The plaintiffs claim to have been, at all material times, company directors of D W and I M Tapping Pty Ltd ("DIT"). The first named defendant ("Woods") is alleged to be an experienced chartered accountant who was engaged on 12 October 1998 by the third named defendant ("ASIC") to act as a consultant pursuant to the Australian Securities and Investments Commission Act 1989 (Cth), ("the Act") with the specific task of undertaking a review of the operations of DIT "to ascertain the current financial position and to provide ASIC as to the Company's future viability (sic)". The agreement dated 12 October 1998, put in evidence on the hearing by counsel for Woods, specifies the consultancy services to be provided as follows:

"1 Undertake review of Company operation to ascertain the current financial position and provide advice to ASIC as to the Company's future financial viability.

2 Any other service with respect to the Company that ASIC deems necessary."

The time frame from commencement to completion was stated to be from 12 October 1998 to 30 November 1998. The second named defendant ("Purdon") is a senior officer of ASIC. The fourth named defendant ("Carrigg") is a reporter employed by the fifth named defendant, which is the publisher of the Mercury newspaper.

4 According to the statement of claim, DIT operated a mortgage investment fund. A legal officer employed by ASIC, one Bruce Brown, attended DIT's offices by arrangement on 21 August 1993 to discuss the operation of the fund. He was advised that the fund operated on a similar basis to solicitors' mortgage funds whereby investors executed a trust deed in which the terms of their investment were specified. However, they were also told that because of difficulties in matching available funds to available borrowers, some funds might be split and others pooled. Mr Brown was advised that the fund advertised for moneys from the public seeking funds for a minimum period of twelve months with 90 days' notice of redemption. He advised the plaintiff Jovanovic that he was satisfied with the operation of the fund.

5 In about January 1996, without the plaintiffs' knowledge, as the result of ASIC's "negligence and lack of good faith", highly confidential information in respect of the directors of a company, Coal River Processing (Tas) Pty Ltd ("Coal River"), which was seeking funds from DIT, was obtained by unnamed employees of ASIC from the Australian Federal Police Intel Database and disseminated to persons and entities which ASIC "knew or ought to have known would be influenced by the receipt of same". DIT, unaware of these actions, agreed to advance $150,000 to Coal River and made the funds available to Tasmanian Trustees to invest in Coal River. Because of the dissemination by ASIC employees of the above information, Coal River failed to secure a lucrative contract and eventually went into liquidation. Although not expressly stated, it seems implicit that DIT was unable to recover from Coal River some at least of the mortgage funds.

6 On 30 May 1997, ASIC officers Tsiakis and Arendt "examined directors of ASIC (sic) under oath at length, relating to dealings between DIT and Coal River Processing (Tas) Pty Ltd and G W Stanton & Associates Pty Ltd (hereinafter known as 'Stanton') as a result of which the ASIC had, or should have had, detailed and comprehensive knowledge and understanding of the relationship between all the entities involved and Tasmanian Trustees". This would appear to be an error and that it was the directors of DIT who were so interviewed. On 1 August 1997, so the statement of claim alleges, "ASIC officers Mr C Green and Mr M Khosa, examined the directors of DIT under oath and gained or ought to have gained further detailed knowledge and understanding of the relationship between all entities involved" and "on or about October 1997 Mr Ong and Mr Purdon further examined directors of DIT under oath and gained or ought to have gained further detailed knowledge and understanding of the relationship between all the entities involved".

7 In October 1997, Purdon advised the plaintiffs that they were in breach of the Corporations Law and must stop advertising for funds from the public. He asserted that Mr Brown's earlier advice was incorrect and that Brown had not carried out an investigation of DIT.

8 On 12 October 1998, Woods was engaged as a consultant. The plaintiffs allege that he was negligent and failed to act in good faith because he failed to carry out a review of DIT's operations and had merely carried out "an overview" of DIT's records. Woods' report to ASIC, which was dated 16 October 1998, was accordingly inaccurate and failed to take into account a double entry of which the plaintiff Tapping warned him on 13 October 1998. This double entry related to a loan to the company referred to above (Stanton) of which the plaintiffs were also directors. Woods' allegedly negligent failure to examine the records of DIT adequately and to take note of the double entry led to an exaggeration of the amount owed by Stanton to DIT.

9 Based on the report in which he concluded that DIT was insolvent, being unable to pay its debts of interest to its borrowers as and when they became due and having an excess of liabilities over assets, Woods swore an affidavit on 27 November 1998 for use in proceedings before the Federal Court wherein his appointment as a provisional liquidator of DIT was sought and granted. The plaintiffs claim that the affidavit was incorrect in part.

10 On 18 January 1999, the fifth named defendant published in the Mercury newspaper an article written by Carrigg entitled "Investors may face long wait" which the plaintiffs allege contain defamatory statements about them. The article was as follows:

ABOUT 20 investors in Hobart's troubled $2 million D W and I M Tapping Pty Ltd mortgage fund could wait years before getting their money back.

And provisional liquidator John Woods, of accounting firm Moore Robsons, said that 'on the bare facts' it was unlikely all their money would be returned.

Mr Woods was appointed by the Federal Court on December 1 last year after an Australian Securities and Investments Commission application to the court.

Mr Woods said the pooled fund had been taken out of the control of company directors and that investors were not receiving interest.

He said a wide range of about 20 investors had invested about $2 million in the fund.

'Some of those investors haven't received interest for some time before my appointment anyway' Mr Woods said. 'How quickly investors get their money back depends on whether the loans can be repaid or refinanced easily.

'With the Tasmanian real estate market the way it is, that could take years. It will probably take a longer time rather than shorter, though if a liquidator is appointed they would be looking to recover money as quickly as possible.'

At the time of Mr Woods' appointment, Federal Court Justice Shane Marshall, in his reasons for judgment, said 'the likelihood of the creditors not receiving capital and interest owing to them from the respondent (D W and I M Tapping Pty Ltd) principally arises due to a loan made by the respondent ... to a related company'.

Mr Woods said that loan, of about $500,000, was made by the Tapping fund to related company G W Stanton and Associates Pty Ltd.

He said he did not know what that money had been used to fund.

Documents obtained by The Mercury from the Australian Securities and Investments Commission, dated January 5 this year, show D W and I M Tapping Pty Ltd and G W Stanton and Associates Pty Ltd had common directors, Ian Maxwell Tapping and Jon Jovanovic.

The two companies also shared a registered office in Chapel St, Glenorchy.

Justice Marshall said in his reasons for judgement (sic): 'The applicant (ASIC) has completed some investigative work in respect of the respondent and has put in evidence a report concerning the company for Mr Woods. In that report Mr Woods concludes that the company is insolvent.

'That view is further re-inforced by unchallenged evidence in Mr Woods' most recent affidavit that there is an egregious shortfall of funds in the company.

There is sufficient evidence before me to raise concerns about the conduct of the directors of the respondent.'

A winding-up hearing would be held in the Federal Court on February 12.

ASIC Tasmanian regional office spokesman Kon Tsiakis said Mr Woods would provide a report to the ASIC containing a summary of the administration to date.

Mr Tsiakis said that report could be used by the court to decide whether a winding-up order was appropriate."

11 The plaintiffs, in substance, claim that the article included statements, the natural and ordinary meaning of which was that they had stolen funds, dealt with funds improperly and were dishonest and of bad character; that they had acted improperly and had made improper use of about $500,000 of the funds by lending it to the related company, Stanton; and that they were deceitful, dishonest and of bad character and had stolen that sum.

12 They plead that Woods was grossly negligent and not acting in good faith when he made the statements attributed to him by the article:

"... because by his own admission under oath on Monday 22 February 1999 before Mr Justice Marshall in the Federal Court of Australia [he] admitted that he had only looked at two accounts and had not properly examined all of the company's records prior to making those statements".

They plead that Purdon and ASIC did not act in good faith and were negligent:

"... because they knew, or ought to have known that the 1st named Defendant would make observations and comments based on the 1st named Defendants report dated 16th October 1998, and the 2nd and 3rd named Defendants knew, or ought to have known, that that report contained errors, and hence the 2nd and 3rd named Defendants knew, or ought to have known, that when indeed the 1st named Defendant did make observations based on the report he prepared which contained errors, the Plaintiffs would be, and were defamed, and the Plaintiffs would, and did, suffer loss and damages".

13 It can be seen then that the plaintiffs' claims to damages purport to be based as against the first defendant Woods on negligence in the preparation of a report commissioned by ASIC and in subsequent affidavit material based on it which led to their suffering damage to their reputations by the publication of defamatory material therein. There is also a direct claim for damages for defamation. As against Purdon, there is a claim for negligent mis-statement in advising the plaintiffs that DIT was not complying with the Corporations Law; for negligence in failing to point out to Woods the errors in his report, such errors being within Purdon's knowledge by virtue of his participation in investigating the affairs of DIT and Stanton and in causing or permitting the publication by Woods of the defamatory material. As against ASIC, there are claims for negligent mis-statement on the basis of its vicarious liability for Purdon's statement that the plaintiffs were not complying with the Corporations Law, or alternatively for Brown's earlier statement that they were complying with that Law. ASIC is also sued for the negligence of its unnamed employees in accessing the database and disseminating confidential material which led to Coal River's demise and in consequence to the demise of DIT. It is also sued in negligence for failing to correct Woods' errors when all the investigations of its various officers should have demonstrated those errors and it is also sued in defamation. Carrigg and the publisher are sued in defamation for publishing the contents of the article on 18 January 1999. The statement of claim contains a number of allegations of lack of good faith by the fourth and fifth defendants in failing to permit the plaintiffs the opportunity to rebut the allegedly defamatory material and in failing to honour an alleged promise to report any such rebuttal when the matter next came before the Federal Court in February 1999; but it is to be noted that no allegation is made of lack of good faith in relation to the publication of the January article.

"13 (1) It is lawful to publish in good faith for the information of the public -

(c) a fair report of the public proceedings of a court of justice, whether the proceedings are preliminary, interlocutory, or final, or of the result thereof, unless -" (here follow two exceptions of no present relevance).

15 With respect to the claim in defamation against the fourth and fifth named defendants, although they seek to rely on that defence, it is not apparent from the article itself nor is there any affidavit material filed by any of the defendants demonstrating that the publication of any defamatory material in the article was a report of public proceedings in a court of justice. True, the article acknowledges that proceedings had been held in the Federal Court in December 1998 and that Woods had been appointed provisional liquidator. There are excerpts from the presiding judge's reasons for judgment, but the defamatory material attributed to Woods does not purport to have been uttered in the course of those proceedings in December 1998. On the face of it, a number of direct quotes are attributed to him in a newspaper published six weeks later. If they were made by Woods outside the Court and independently of those proceedings, the fourth and fifth named defendants could not, in my view, claim the protection of the Defamation Act, s13. On the other hand, if Woods made no such out of Court statements and the substance of the article is in fact taken from statements made in the course of the proceedings in the Federal Court, it would appear that the section would be available to them. Whether or not the article, or the parts complained of, constituted a fair report of the proceedings in the Federal Court on 1 December 1998 requires, if challenged, as it is here, a consideration of the material before that Court. In Bunker v James (1981) 26 SASR 286 at 291, Zelling J cited with approval the following proposition taken from Gatley on Libel and Slander, 7th ed (1974), par 626 at 265:

"An abridged or condensed report of judicial proceedings must, however, be fair, not garbled so as to produce mis-representation, nor by suppression of some portion of the evidence giving an entirely false and unjust impression to the prejudice of one of the parties concerned. A report which accurately sets out one part of the proceedings and omits another which gives a different complexion to the whole case will not be privileged. It is not enough to report part of the proceedings correctly if, by leaving out other parts, you thereby create a false impression."

In the 8th ed (1981), par 607 at 259, that passage is reproduced and the text continues:

"And so, where the defendant, in publishing a report of proceedings for perjury against the plaintiff, omitted certain parts of the cross-examination of the Crown witnesses which were favourable to the plaintiff, it was held that such omission raised a question for the jury whether the report was partial or inaccurate, Lord Campbell CJ observing that 'partiality and inaccuracy might be made out by suppression of true as well as by insertion' of untrue matter." (Lewis v Levy (1858) EB & E, at p 551.)

16 In summary proceedings of this kind, although there is affidavit material incorporating a transcript of the proceedings in the Federal Court, it seems to me to be inappropriate to undertake the exercise of determining such a fundamental question of degree as the fairness of report when it is challenged by the plaintiffs.

17 As to the first three defendants, the Act, s246 is relevant and is relied upon by them. That provides:

(g) a staff member or a person who is, or is a member of, a Commission delegate or is authorised to perform or exercise a function or power of, or on behalf of, the Commission;

is liable to an action or other proceeding for damages for or in relation to an act done or omitted in good faith in performance or purported performance of any function, or in exercise or purported exercise of any power, conferred or expressed to be conferred by or under a national scheme law, section 12A or Division 2 of Part 2, or a prescribed law of the Commonwealth or of this or any other jurisdiction."

By the Act, s5, "Commission" is defined as the Australian Securities and Investments Commission, that is, the third named defendant, and "staff member" is defined as meaning:

"(a) a member of the staff referred to in subsection 120(1) or a person employed under subsection 120(3);

(c) any of the officers, employees and persons who under section 122 are to assist the Commission."

Clearly the first named defendant Woods and the second named defendant Purdon fall within this definition.

18 The plaintiffs' claims against any of the first three defendants, other than the accessing of the database, relate to acts done or omitted in performance or purported performance of a function or to the exercise or purported exercise of a power conferred under a national scheme law which includes the Corporations Law 1989 and the Act itself (other than s12A and Div 2 of Pt 2 all of which are covered by the immunity provision of s246). For the defendants to successfully rely on that provision, they would have to establish good faith by the defendant in question. Although it may be more appropriate to traverse good faith by way of reply, the plaintiffs have anticipated the defence and allege lack of good faith in the statement of claim. If ASIC's alleged negligence in relation to the accessing of the database and the dissemination of the damaging material about the directors of Coal River can be said to be acts done or omissions made in a similar way, good faith will likewise need to be proved by it.

19 The meaning of good faith depends upon its context. In Mid Density Developments Pty Ltd v Rockdale Municipal Council [1993] FCA 408; (1993) 116 ALR 460, the Full Court of the Federal Court of Australia gave consideration to the meaning of the phrase as it appeared in the Local Government Act 1919 and the Environment Planning and Assessment Act 1979, both of New South Wales. These Acts contain provisions whereby councils were not to incur any liability in respect of advice provided "in good faith". Gummow, Hill and Drummond JJ in a joint judgment said, at 468 - 469:

"'Good faith' in some contexts identifies an actual state of mind, irrespective of the quality or character of its inducing causes; something will be done or omitted in good faith if the party was honest, albeit careless. See, for example, Smith v Morrison [1974] 1 WLR 659. (Abstinence from inquiry which amounts to a wilful shutting of the eyes may be a circumstance from which dishonesty may be inferred: Jones v Gordon (1877) 2 App Cas 616 at 625, English and Scottish Mercantile Investment Co, Ltd v Brunton [1892] QB 700 at 707-8, The Zamora (No. 2) [1921] 1 AC 801 at 803, 812.) On the other hand, 'good faith' may require that exercise of caution and diligence to be expected of an honest person of ordinary prudence. This, counsel urged, was what was required by the present statutory context. The appellant then submitted that there was a plain absence of good faith in this sense on the part of the respondent.

In Siano v Helvering 13 F Supp 776 at 780 (1936), Clark J said that the words 'good faith' or their Latin equivalent appear frequently in the law and are capable of, and have received, what he described as 'two divergent meanings'. The first was the broad or subjective view which defines them as describing an actual state of mind, irrespective of its producing causes. The other construed the words objectively by the introduction of such concepts as an absence of reasonable caution and diligence. In the instant case, the Court had under consideration a regulation promulgated by the Commissioner of Internal Revenue which used the expression 'failure in good faith to observe and comply with the requirements of all Internal Revenue and other laws relating to any operations under his permit'. The appellant asserted that he had never heard of a particular tax which he had failed to pay. The Court said (at 781):

The government could and perhaps for the completeness of the record should have introduced evidence of the fame (or notoriety, as we said before) of the tax. Even in the absence of such evidence, we think the permitee was under a duty to make inquiry. We place that upon two factors: The nature of taxes, and the lapse of time. Three years and a tax universal to his trade call, in our opinion, for some curiosity. No attempt to satisfy that curiosity smacks to us too much of the ostrich and proportionately too little of good faith.

See also Lucas v Dicker (1880) 6 QBD 84 at 88, Re Dalton (A Bankrupt; Ex parte Herrington and Carmichael (a firm) v Trustee) [1963] Ch 336 at 354-5, and Rumsey v R (1984) 5 WWR 585 at 592-3. These cases illustrate that, in a particular statutory context, a criterion of 'good faith' may go beyond personal honesty and the absence of malice, and may require some other quality of the state of mind or knowledge of the relevant actor. An example in this Court is Wilde v Spratt (1986) 13 FCR 284 at 292; 70 ALR 171, where s135(4)(b) of the Bankruptcy Act 1966 was in issue; cf Official Trustee in Bankruptcy v Mitchell [1992] FCA 521; (1992) 38 FCR 364 at 371; 11- ALR 484.

The concept of 'good faith' as understood in various fields of the general law provides further examples. For example, an administrative decision may involve an improper exercise of power on the footing that it is unreasonable in the Wednesbury sense, without there being mala fides. Likewise, the whole doctrine of constructive notice which was developed in equity as appendant to the bona fide purchaser principle, operates by reference to what would have come to the knowledge of the purchaser if he had conducted his activities in the ordinary way; see Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 412-3; [1975] HCA 8; 5 ALR 231.

In the present case, it will be wrong to assume that when used in the relevant legislation the phrase 'anything done or omitted to be done in good faith' (in sub-s. 582A (1) of the Local Government Act) and 'in respect of any advice provided in good faith' (in sub-s. 149(6) of the EPA Act) operate to leave the respondent liable only in respect of dishonesty."

20 In this case, the plaintiffs submit that the negligence of the first two defendants and of ASIC through them and its other agents was of a high order and such as to demonstrate an absence of good faith within the meaning the Act, s246. Whether or not the first named defendant Woods has a defence to an action for defamation in respect of the contents of his affidavit filed in the proceedings in the Federal Court (as to which it would seem he has absolute privilege by reason of the Defamation Act, s11), the plaintiffs maintain that his report to ASIC of 16 October 1998 was not prepared in good faith and constituted a negligent mis-statement from which consequences deleterious to them flowed.

21 Summary judgment against a plaintiff is not lightly given (Dey v Victorian Railway Commissioners (1948 - [1949] HCA 1; 1949) 78 CLR 62 at 84 and 91; Bayne v Riggall [1908] HCA 39; (1908) 6 CLR 382; Goodson v Grierson [1908] 1 KB 761). I am not satisfied that the plaintiffs' case is so completely hopeless that it ought to be dismissed before they have the opportunity to prove their allegations on trial nor that the defendants' claims to immunity or qualified privilege are so demonstrable as to provide a complete answer to the case the plaintiffs advance. The applications for summary judgment are therefore dismissed. While I acknowledge the inelegance of the drafting of the statement of claim, I am not prepared to strike it out. Though containing much that is inappropriate, it nevertheless contains sufficient to found actions for negligence, negligent mis-statement and defamation. I express the hope that the plaintiffs will use their best endeavours to secure proper legal advice in refining their pleadings, preparing their case in an orderly way and assessing the strength of the foreshadowed defences. The defendants' applications are dismissed.