ASIC's role
219 ASIC's functions and objects are broad and multi-faceted.
220 An example of an object which reflects ASIC's role in promoting the public interest generally, which might be thought to conflict with a duty to a particular class of investors is the object in s 1(2)(a) of striving to "maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy". Providers of financial services and financial products are likely to have different interests in the performance of the financial system and the economy from investors, and investors do not have uniform objectives.
221 As Hayne J observed in Crimmins, in the passage cited above at paragraph 205, the imposition of a duty of care in the exercise of a regulatory function such as investigation or imposition of a condition on a licence creates the risk of distortion of focus away from the public interest and towards protection of the relevant statutory authority from suit.
222 In New South Wales v Paige [2002] NSWCA 235; (2002) 60 NSWLR 371 at [93], Spigelman CJ said (Mason P and Giles JA agreeing on this point):
When considering the issue of coherence it is necessary to give close consideration to the statutory scheme: specifically whether a common law duty is "inconsistent" or "incompatible" with the statute and, relevantly in this case, the regulations. (See, for example, Crimmins at 13 [3], 16 [18], 39 [93], 46 [114], 72 [203]-[213]); Sullivan v Moody at 582 [60].) However, issues of coherence may arise even if there is no direct inconsistency. It may be enough if the effect of imposing civil liability is to "distort [the] focus" of the statutory decision-making process. (Crimmins at [292] per Hayne J.)
223 Spigelman CJ continued:
115. As a general rule, in my opinion, it is undesirable to inhibit an investigation into the exercise of a statutory power which protects public interests by imposing the chilling effect of a risk of civil liability. As Lord Keith of Kinkel said in Hill v Chief Constable of West Yorkshire [1989] 1 AC 53 at 63 with reference to police investigation of crime: "In some instances the imposition of liability may lead to the exercise of a function being carried on in a detrimentally defensive frame of mind."
…
118. In Rowling v Takaro Properties Limited [1988] 1 AC 473, the Privy Council had before it a claim for damages said to have been caused by an ultra vires decision made by a Minister pursuant to a statutory power. The Privy Council identified a number of factors that militated against the imposition of any duty of care. A number of these considerations are material in the present context. These factors include the following (at 502):
"... in the nature of things, it is likely to be very rare indeed that an error of law of this kind by a minister or other public authority can properly be categorised as negligent. As is well known, anybody, even a judge, can be capable of misconstruing a statute; and such misconstruction, when it occurs, can be severely criticised without it attracting the epithet 'negligent'. Obviously, this simple fact points rather to the extreme unlikelihood of a breach of duty being established in these cases ... but it is nevertheless a relevant factor to be taken into account when considering whether liability in negligence should properly be imposed."
119. Their Lordships went on to refer, as a further consideration, to "the danger of overkill" by reference to certain circumstances in which "the imposition of liability may even lead to harmful consequences", about which their Lordships elaborated (at 502):
"... once it became known that liability in negligence may be imposed on the ground that a minister has misconstrued a statute and so acted ultra vires, the cautious civil servant may go to extreme lengths in ensuring that legal advice, or even the opinion of the court, is obtained before decisions are taken, thereby leading to unnecessary delay in a considerable number of cases."
120. In Rowling v Takaro, their Lordships rejected the proposition that a minister was under an obligation to take legal advice in cases relevant to the exercise of a discretionary power (at 502-503). They concluded that the imposition of liability in negligence could lead to delay occurring in the decision-making process. Nevertheless, their Lordships did not determine the issue. They decided the question on the issue of breach of duty, rather than the existence of a duty. The circumstances of the case proved to be an example of what their Lordships indicated would usually be the case, that is, the mere misconstruction of a statute cannot be described as negligent.
224 In Precision Products at [119] and [120], Allsop P referred to the lack of coherence between administrative law doctrines and the imposition of monetary compensation for the flawed or failed exercise of governmental power, saying relevantly:
As will be seen, if standards of administration are to be regulated and enforced by recourse to the recovery of damages at common law, the courts must necessarily become involved, not just in the constitutional role of ensuring legality, but also in laying down standards of administrative conduct by reference to a standard of reasonable care. This standard setting and its enforcement by the courts would be in relation to the exercise of power of another branch of government and in circumstances where there exist machinery and techniques for the setting and maintenance of good administration and good government. …
The above is not to deny the continued force of Caledonian Collieries Ltd v Speirs [1957] HCA 14; (1957) 97 CLR 202 and like cases. When a Council examines a power to build a structure, approve a plan, give permission for an act or otherwise engage in activity, it may well be required (on pain of liability in damages) to exercise care in relation to someone who may be affected by the power's exercise. What tends to strike at the coherence of administrative law here is the positing of a duty to exercise reasonable care not to make a flawed decision by, for instance, failing to give procedural fairness or failing to confine the power within statutory limits. Such a duty, as contended for here, would tend to open public authorities to the spectre of compensation for flawed decision-making, in circumstances where the validity of the exercise of power can be tested and resolved by judicial review, and where standards of competence and skill are well able to be dealt with by an appropriate regime of governmental administration.
225 In this case, the posited duty is a duty to exercise reasonable care not to make a flawed decision by making the pleaded administrative law errors. The situation is different from Precision Products, however, in that the plaintiffs and group members were not realistically in a position to seek judicial review of the conduct now said to have involved breach of a duty of care.
226 In Yuen Kun Yeu v Attorney General of Hong Kong [1988] AC 175 ("Yuen Kun Yeu"), the Privy Council held that the Commissioner of Deposit-taking Companies of Hong Kong did not owe a duty of care to depositors with a company that subsequently went into liquidation, causing the plaintiffs to lose their deposits. The case bears some similarities with the present case, in that there were allegations that the deposits were made in reliance upon the company's registration by the Commissioner, that the Commissioner knew or ought to have known had he taken reasonable care that the company's affairs were being conducted fraudulently and to the detriment of depositors, that he should have ensured the company's compliance with the relevant regulation and that he should not have registered the company or should have revoked its registration.
227 The Privy Council recognised that one of the purposes of the relevant regulation (although not the only one) was to make provision for the protection of persons who deposit money (at 194). They also accepted that it was reasonably foreseeable by the Commissioner that, if an uncreditworthy company were placed on or allowed to remain on the register, persons who might in the future deposit money with it would be at risk of losing that money. However, that factor was outweighed by the following matters:
(1) Future depositors were not the only persons whom the Commissioner should properly have in contemplation. In considering the question of removal from the register, the immediate and probably disastrous effect on existing depositors would be a very relevant factor;
(2) The Commissioner did not have power to control the day-to-day management of the company. His power was limited to putting it out of business or allowing it to continue;
(3) The immediate cause of the depositors' loss was the conduct of the company. Another cause was the depositors' conduct in depositing their funds with a company that turned out to be uncreditworthy. Considerable information was publicly available about the company and no doubt advice could have been obtained from investment advisers;
(4) Before the deposits were made, the Commissioner had no relationship with the depositors;
(5) The circumstances that the Commissioner had cogent reason to suspect that the company's business was being carried on fraudulently and improvidently did not create a special relationship between the Commissioner and the company; or between the Commissioner and those unascertained members of the public who might in the future become exposed to the risk of financial loss through depositing money with the company;
(6) While the investing public might feel some confidence that the provisions of the regulation went a long way to protect their interests, reliance on the fact of registration as a guarantee of the soundness of a particular company would be neither reasonable nor justifiable, nor should the Commissioner reasonably be expected to know of such reliance, if it existed.
228 Finally, the Privy Council acknowledged the force of arguments put on behalf of the regulator that the imposition of a common law duty of care could lead to distortion of regulatory judgment, by producing a defensive approach to the Commissioner's work.
229 The decision in Yuen Kun Yeu was cited by the High Court with apparent approval in Sullivan v Moody at [58].
230 In Davis v Radcliffe [1990] 1 WLR 821, the Privy Council found that the members of the Finance Board and the Treasurer of the Isle of Man did not owe a duty of care to depositors of a bank licensed under statute. The Privy Council concluded that the case was relevantly indistinguishable from Yuen Kun Yeu. The Council identified the following considerations as militating against the imposition of a duty of care:
(1) The functions of the defendants were "typical functions of modern government, to be exercised in the general public interest"; and
(2) The defendants did not possess sufficient control over the management of the bank to warrant the imposition of liability in negligence.
231 In considering the question of functions, the Privy Council said at 826-827:
No doubt, in establishing a system of licensing for banks, regard was being had (though this is not expressly stated in the long title of the Act) to the fact that the existence of such a licensing system should provide an added degree of security for those dealing with banks carrying on business in the Isle of Man, including in particular those who deposit money with such banks. But it must have been the statutory intention that the licensing system should be operated in the interests of the public as a whole; and when those charged with its operation are faced with making decisions with regard, for example, to refusing to renew licences or to revoking licences, such decisions can well involve the exercise of judgment of a delicate nature affecting the whole future of the relevant bank in the Isle of Man, and the impact of any consequent cessation of the bank's business in the Isle of Man, not merely upon the customers and creditors of the bank, but indeed upon the future of financial services in the island. In circumstances such as these, competing considerations have to be carefully weighed and balanced in the public interest, and, in some circumstances … it may for example be more in the public interest to attempt to nurse an ailing bank back to health than to hasten its collapse. The making of decisions such as these is a characteristic task of modern regulatory agencies; and the very nature of the task, with its emphasis on the broader public interest, is one which militates strongly against the imposition of a duty of care being imposed upon such an agency in favour of any particular section of the public.