Soper v Australian Securities & Investments Commission

The application to the Australian Securities & Investments Commission 8 On 17 November 2003 solicitors acting on behalf of Mr Carpenter wrote to ASIC giving a brief summary of Pioneer's claim against the Bank. The letter stated that before undertaking such serious litigation, Mr Carpenter's lawyers had advised him that he should have examinations undertaken of key officers of the Bank. ASIC was provided with a copy of an opinion from Mr Garnsey QC, and an opinion on damages from Mr Perram, as well as a draft affidavit in support of an application for examination which sets out the reasons for the examinations. In addition, ASIC was provided with copies of letters dated 13 November (Thursday) and 14 November 2003 (Friday) passing between Mr Gavin Thomas and Mr Carpenter's solicitors. 9 The letter to ASIC of 17 November 2003 continued: 'The liquidator, we believe, does not have confidence in the cause of action available to the company against the Bank, notwithstanding having been provided with Mr Garnsey's advice and the benefit of subsequent conferences with Mr Fordyce and his own solicitor, Mr Golledge. He additionally does not have any funds. We enclose faxes that have passed between us and the liquidator on Thursday and Friday of last week. The contemplated litigation against the Bank would, if successful, pay all of the company's debts and leave very significant returns to the contributories. There are potential time problems as the litigation would need to be commenced by November 2004. Almost 6 years have now passed since the cause of action arose.' 10 On 10 December 2003 Kerry Martin, a lawyer employed by ASIC, wrote to Mr Carpenter's solicitors raising various queries in relation to the application made in the letter of 17 November 2003. Amongst other things, ASIC sought information as to why the liquidator had declined to take action on behalf of Pioneer in relation to the claim which Mr Carpenter asserts that Pioneer has against the Bank. 11 On 22 December 2003 Mr Carpenter's solicitors replied to ASIC's request for further information. 12 On 8 January 2004 Alison Tuck (who had taken over the matter from Kerry Martin) sent a detailed memorandum to her superior, George Boland, which was copied to the Delegate. The memorandum set out information in relation to Pioneer, including the fact that Gavin Thomas was appointed as its liquidator on 16 December 1999. It also contained information about Mr Carpenter, including that he was a former director of Pioneer, and a shareholder who also claims to be a creditor of Pioneer. The legal actions which had been instituted by the Bank and the company against Mr Carpenter were summarised. The alleged liability of the Bank to Pioneer was discussed as was the proposal for the examination of officers of the Bank. 13 Under the heading 'Status of the Applicant' the following appears: 'Section 9 provides that an "eligible applicant" can be authorised in writing by ASIC to make applications under Part 5.9 of the Act of which s 596B is a provision. Mr Carpenter seeks authorisation from ASIC for standing as an "eligible applicant" within the terms of s 596B. Section 9 does not provide criteria for ASIC to consider in granting its authority. Guidance as to the matters which might be considered by ASIC granting its authorisation is provided by Re Excel Finance (1994) 52 FCR 69, 83-84 when the Federal Court said: "The Commission, in determining whether to grant authorisation, will consider the relationship which the person seeking authorisation has to the relevant corporation and the external management of that corporation which is in progress. Contributories and creditors would normally have the appropriate connection with the corporation (as the history of examination orders, already set out, demonstrates), although other factors relevant to a particular case may make the authorisation of such a person inappropriate." Section 9 of the Corporations Act 2001 defines a contributory as including a "holder of fully paid shares of the company". It is clear on this authority that Mr Carpenter fulfils the requirement of both contributory and creditor anticipated as coming within the necessary relationship required of an "eligible applicant". It is also arguable that a director of the corporation equally fulfils the same definition.' 14 The memorandum proceeded to consider a number of other factors which had the capacity to make authorisation of Mr Carpenter as an eligible applicant inappropriate. Those factors included the litigation between the Bank and Pioneer on the one hand, and Mr Carpenter on the other. The reluctance of the liquidator to institute proceedings was identified as another matter which must be taken into account when determining the appropriateness of granting the authority which Mr Carpenter sought. 15 The memorandum proceeded to consider the circumstances in which an application for an examination order would be an abuse of process. The possibility of an abuse of process arose for consideration because of the proceedings which the Bank had taken against Mr Carpenter on his guarantee, and the grounds on which Mr Carpenter was resisting the Bank's claim. The memorandum noted that the responsibility of determining whether an eligible applicants' purpose is an abuse of process lies with the Court considering the application for the examination orders, but also noted that the draft affidavit which had been submitted to ASIC did not disclose the proceedings between the Bank and Mr Carpenter. It was suggested that the fact of Mr Carpenter's guarantees, and the action by the Bank to enforce them, are matters which the Court would need to consider in assessing the predominant purpose for which the examinations were sought. 16 Under the heading 'Conclusions' the following appears: 'Mr Carpenter bases his application on his status as a creditor of the corporation and the authorities suggest that that status would be sufficient to give him the necessary connection with the corporations. No actual evidence of the debt owed by the corporation to Mr Carpenter has been provided and it might be unwise to proceed to authorise him until that has been established to ASIC's satisfaction. It would be my recommendation that final authorisation be withheld until this has been provided. While the examination proposed suggests the possibility of some collateral advantage to Mr Carpenter in his defence against the Bank under the guarantees, whether that constitutes an abuse of process will be a matter to be considered by the Court. It is submitted that although ASIC is cognisant of the possibility there might be an abuse of process by authorising Mr Carpenter to be an eligible applicant, it cannot overlook the fact that the stated intention of the examination is to obtain information on which the corporation qua liquidator can consider the existence or otherwise of the cause of action against the Bank. The latter purpose is a legitimate use of the examination procedure since it directly relates to the functions of the liquidator and may accrue a benefit to the creditors and contributories alike. Similarly, the motivation to conduct the examination in circumstances where a significant sum of money is not first required, as would be the case if the liquidator's wishes are to be followed, is not one which should necessary constrain ASIC's authorisation. Especially since, in all other respects, Mr Carpenter meets the test of an "eligible applicant". Accordingly, subject to any further requirements for information, it would be my preliminary recommendation that Mr Carpenter be authorised by ASIC as an "eligible applicant" within the meaning of Par 5.9 Corporations Act 2001.' 17 Mr Boland made some handwritten annotations upon this memorandum. One of them was to the effect that the affidavit to be filed in support of an application for an examination order should highlight the existence of the guarantee given by Mr Carpenter in favour of the Bank or the current proceedings being brought by the Bank. Another was as follows: 'While I have some reservations about authorising Mr Carpenter as an "eligible applicant" on the basis of an abuse of process, as canvassed above, I consider that for ASIC to make a determination on the issue, places ASIC in a very precarious position. Whether there is an abuse of process is in my opinion ultimately a question that a Court is better placed to adjudicate. I therefore recommend on the basis that Mr Crawford (sic) has satisfied all other relevant criteria that he be authorised as an "eligible applicant"* Further, on balance, in relation to the abuse of process issue, I consider the balance falls in favour of the stated intention of the examination being to obtain information on which Pioneer qua liquidator can consider the existence or otherwise of a cause of action again the Bank as against Mr Carpenter obtaining a forensic advantage not otherwise available, for his defence against the Bank under the guarantees. George C Boland 12/1/04

• This is of course dependent on whether we seek to have the draft affidavit amended as per my comments on page 10 before we grant the authorisation.' 18 On 13 January 2004 Ms Tuck wrote to the Delegate attaching her memorandum of 8 January 2004, together with Mr Boland's comments. She attached a draft letter of authorisation for consideration along with a draft letter seeking the confirmation which Mr Boland had suggested. On 14 January 2004 the Delegate endorsed Ms Tuck's memo as follows: (Mr Fordyce was and is the solicitor acting for Mr Carpenter) 'Agreed, issue letter to Mr Fordyce prior to final consideration of request for determination.' 19 On 15 January 2004 Ms Tuck wrote to Mr Fordyce seeking confirmation that the existence of the guarantee in favour of the Bank from Mr Carpenter, and the proceedings between the Bank and Mr Carpenter, would be included in any affidavit filed in the Supreme Court seeking examination orders. On 20 January 2004 Mr Fordyce provided the confirmation sought. 20 On 21 January 2004 Ms Tuck forwarded a memo to the Delegate, copied to Mr Boland, advising that Mr Fordyce had provided the confirmation sought. As this was the only outstanding matter relating to the application, it was referred back to the Delegate for his final consideration. On 21 January 2004 the Delegate endorsed that memo as follows: 'Agreed. Proceed to issue letter.' 21 Some time on 21 January 2004 someone within ASIC caused to be printed out a copy of Austin J's judgment in Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2003) 21 ACLC 1330. This was a judgment delivered by Austin J on 10 June 2003 in which his Honour had dismissed Mr Carpenter's application to have Mr Thomas removed as liquidator of Pioneer. The fact that an application had been made by Mr Carpenter to remove Mr Thomas as liquidator was not a matter which Mr Carpenter had disclosed to ASIC in his application for authorisation as an eligible applicant. On 21 January 2004 Ms Tuck wrote a memorandum to Mr Boland about that decision. Some details of the judgment were given. Under the heading 'Relevance to this Application' the following appears: 'The reported case reflects the nature and quality of the evidence given and it is to be noted that the Court found Carpenter inconsistent and misleading in several areas. It provides insight into the course of conduct since the Company was placed into liquidation and the attempts of Carpenter to promote an action against the Bank. This is directly relevant to the application as the grounds considered in granting the authority is the difficulty which Carpenter has experienced either convincing Thomas to commence proceedings or even to consider the examinations. While ultimately this information does not significantly change the grant of authority already recommended, it is notable that it has not been included in the application. It is suggested that the course of proceedings referred to in the case might be of assistance to a Court considering the application ultimately submitted under s 596B and that it would be prudent to require the applicant to provide a full account of proceedings which bring them to the point of making a s 596B application in their own right rather than through the liquidator.' 22 The following recommendation was made: 'It is recommended that a letter be forwarded to Mr Fordyce indicating that this case has come to the attention of ASIC in its consideration of the application, and that its absence from the particulars provided by Mr Fordyce are notable. Accordingly it would be required that such information is of relevance to both the application to ASIC and any subsequent s 596B application to the Court and that an undertaking is required from Mr Fordyce that particulars pertaining to the unsuccessful application to have the current liquidator removed be included in the affidavit in support of the s 596B application.' 23 On 23 January 2004 Alison Tuck wrote to Mr Fordyce seeking confirmation that the details of the unsuccessful application before Austin J would be included in any affidavit filed with the Court. On 30 January 2004 Mr Fordyce responded providing the assurance sought. 24 On 4 February 2004 Kerry Martin (who had resumed control of the matter) wrote to the delegate as part of a 'brief to the delegate'. The brief included the memorandum from Alison Tuck of 21 January 2004 in relation to Austin J's decision on the application to remove the liquidator. She also forwarded ASIC's working file to the delegate. A full copy of Austin J's decision was the first document contained in the working file. 25 The memorandum of 4 February 2004 proceeded as follows: 'Taking consideration of the matters discussed in an earlier memorandum prepared in this matter by Alison Tuck, dated 8 January 2004, all subsequent memos and correspondence together with the undertakings given by Mr Fordyce as discussed above, [ie to disclose the decision of Austin J in any affidavit filed in support of an examination summons] it is my recommendation that Mr Carpenter's application for authorisation as an "eligible applicant" pursuant to Part 5.9 s 596B of the Corporations Act 2001 should be supported. Accordingly, I refer the matter to you for your consideration. …' 26 Ms Tuck endorsed the memorandum with the notation 'agreed'. The Delegate endorsed the memorandum with the notation 'approved. Letter issued.'

The grounds of the application 27 As a result of amendments made at the commencement of the hearing, the application was confined to two grounds, namely: (i) in making the decision, ASIC failed to take into account relevant considerations; and (ii) that the decision was contrary to law in that it was so unreasonable that no reasonable person could have so exercised the power. 28 The relevant considerations which ASIC is alleged to have failed to take into account are particularised as follows: '(iB) The attitude of the liquidator of Pioneer concerning: (a) whether he had "confidence" in the proposed proceedings between Pioneer and Australia and New Zealand Banking Group Ltd (ANZ); (b) why he had not commenced proceedings; (c) whether or not he proposed to commence proceedings and, if not, why not; (d) whether he had considered the need for further examinations before deciding whether or not to commence proceedings on behalf of ANZ against Pioneer; (e) whether he required funds before he would conduct examinations and, if so, why; (f) what materials were already available to him to assess and consider the prudence of Pioneer commencing proceedings against ANZ; (iC) the attitude of the liquidator to commencing proceeding against ANZ as referred to in paragraph 34 of the judgment of Austin J in Domino Hire Pty Ltd v Pioneer Park Pty Ltd & Ors (2003) NSWSC 496 (Domino Hire); (iD) the findings of Austin J at paragraphs 37, 44, 82 and 89 in Domino Hire concerning the conduct of the liquidator in determining whether or not to commence proceeding on behalf of Pioneer against ANZ; (iE) the rejection by Austin J in Domino Hire of all of the second respondent's complaints concerning the conduct of the liquidator of Pioneer; (i) the relationship between the second respondent and Pioneer in that: (A) the second respondent is a director of Pioneer; (B) Pioneer and its liquidator have commenced proceedings against the second respondent; and (C) the second respondent is only a creditor of Pioneer in relation to his outstanding employee entitlements; (ii) the relationship between the second respondent and the external management of Pioneer in that: (A) Pioneer is under the control and direction of a liquidator; (B) on or about 10 June 2003, the Supreme Court of New South Wales rejected an application by the second respondent for the removal of the liquidator; (C) the liquidator has already conducted examinations pursuant to s 596A and 596B of the Corporations Act; (D) the authorisation of the second respondent had the real potential to interfere with the proper performance of the liquidator's functions; and (E) the matters referred to in (iA) - (iE).' 29 In the applicants' submissions Ms Tuck's memo of 21 January 2004 which summarised Austin J's judgment in Domino Hire made no mention of the following aspects of that judgment: (a) par 33 which recounts the liquidator's evidence that his funding agreement with ANZ does not prevent him pursuing a claim against the Bank; (b) par 34 which recounts the evidence of the liquidator that he had made repeated requests for a copy of Mr Garnsey's opinions; (c) par 37 which recounts the liquidator's evidence that after taking advice from his solicitors, he is not satisfied that reasonable grounds exist for making any claim against the Bank. However, he is willing to institute action against the Bank if he is satisfied that a reasonable claim can be made, and if he is provided with adequate sources of funding for any such action; (d) par 82 which records that the liquidator had inspected the Bank's files and was not persuaded that there is a reasonably arguable case against the Bank; (e) par 84 which contains Austin J's finding that the liquidator's failure to examine any Bank officers was satisfactorily explained as he had run out of money and (in his opinion) he has not been shown any legal opinion or other material to justify the view that there are reasonable grounds for proceeding against the Bank; and (f) par 89 which includes a finding by Austin J that there was no reason to doubt the bona fides of the liquidator's statements that he was prepared to pursue proceedings against the Bank if it could be shown that there was a reasonable prospect of success, and funding was available. 30 I agree that the memo of 21 January 2004 does not mention those matters. Whilst a full copy of the judgment was included in the working file, there is no evidence as to whether or not the Delegate read it. Parts of that copy of the judgment have been highlighted, and it is common ground that this occurred before submission of the working file to the Delegate.

Consideration 31 The effect of s 569B of the Corporations Act and the definition of 'eligible applicant', when taken in conjunction with s 11(4) of the ASIC Act (see Mercantile Mutual Life Insurance v ASC (1993) 40 FCR 409), is to enable ASIC to make an administrative decision by virtue of which a person is granted standing to apply to the Court to summons a person for examination about a corporation's examinable affairs. The term 'examinable affairs' is defined in s 9 of the Corporations Act. It follows from the definition, also in s 9, of 'eligible applicant' that the appointment of a liquidator of a corporation does not preclude ASIC from granting an authorisation to some other person which will result in that person falling within the definition of 'eligible applicant': 'eligible applicant … means: … (e) a person authorised in writing by ASIC …' (Corporations Act s 9) 32 The operation of the precursor to these provisions was considered by the Full Court in Re Excel Finance Corporation Ltd v England (1994) 52 FCR 69 (Excel). The Full Court in Excel drew attention to the fact that the legislation provides for a two stage process and that different matters will arise for consideration at each stage of that process. The first stage in that procedure, where the prospective applicant for a court order is not ASIC or a person referred to in par (b), (c) or (d) of the definition of 'eligible applicant', is the authorisation by ASIC of the person to make an application under Part 5.9. The second stage is when the applicant, thus authorised, makes an application to the Court. The question at issue in the first stage is whether the prospective applicant seeking authorisation is an appropriate person for ASIC to authorise to make the application to the Court. That question will require consideration of the relationship which that person has to the relevant corporation, although it may also encompass matters personal to that applicant, such as the applicants' relationship to the persons to be examined: Excel at 82. At 86 the Full Court said: 'As we have already noted, the grant of authorisation under subs (1) does no more than confer standing upon the person authorised to make an application. That being the case, reference to the subject matter, scope and purpose of subsection (1) leads to the conclusion that the decision-maker, in determining whether to authorise a particular person to make applications in relation to a particular corporation, will be required only to consider the relationship which that person has to the external administration and in the particular case the appropriateness of that person being given standing to apply to the Court under subs (2).' 33 There was no contest as to the basic principles which are applicable where review is sought on the ground of failure to take into account relevant considerations. They were laid down by the High Court in Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24. I attempted to summarise them in Elias v Commissioner of Taxation (2002) 123 FCR 499. This ground is only made out if it is shown that the decision-maker has failed to take into account a consideration which, in the circumstances, he was bound to take into account in order to validly exercise the power (ie a mandatory relevant consideration). Mandatory relevant considerations are determined by a construction of the statute. In particular, where the terms of the power are unconfined, the factors that may be taken into account are similarly unconfined, except insofar as there is found some implied limitation on the factors to which the decision-maker may legitimately have regard; with the existence of any implied limitation turning ultimately on the subject matter, scope and purpose of the statute. Where a power is cast in very general terms, it is generally a matter for the decision-maker to decide what is relevant and what is not. 34 As Excel makes plain, the question for ASIC to determine was whether Mr Carpenter was an appropriate person to receive the relevant authorisation. An applicant seeking a written authorisation does not have to show that he or she is the most suitable person in the circumstances to conduct the proposed examinations: see Queensland Building Services v Australian Securities Commission (1997) 73 FCR 29 at 40, although that is not to say that if some more suitable person was seeking to conduct examinations, that ASIC would not be entitled to take that matter into account, if it thought it appropriate, in deciding whether or not to grant an authorisation. 35 The Delegate did not give evidence in these proceedings. A request that he should provide a statement pursuant to s 13 of the ADJR Act was rejected by ASIC. The justification for the rejection was that the decision was not one to which s 13 applied because it was included in one of the classes of decision set out in Schedule 2 to the ADJR Act, and in particular par (f) and/or (f)(iv). This matter was not pursued further. The evidence establishes that the documents before the Delegate at the time he made his decision consisted of the documents included in the brief to the Delegate and the documents included in the ASIC working file. Given the failure of the applicants to pursue a request under s 13, the Delegate was not bound to give reasons for his decision, and nor did he do so. In those circumstances, any determination, purely as a matter of fact, as to what matters the Delegate did or did not take into account can only be made by way of inference from the documents that were put before him. 36 Notwithstanding particulars (i)(A)-(C) above, it is clear that information in relation to each of these matters was placed before the Delegate. In those circumstances, either the Delegate did take these matters into account, or, at the very least, the applicants have not established that the Delegate failed to take the matters into account, given that there is simply no basis in the evidence on which I could draw an inference that the Delegate failed to take into account matters which were put before him: see Minister for Aboriginal & Torres Strait Islander Affairs v Western Australia (1996) 67 FCR 40 at 62; Minister for Immigration & Multicultural & Indigenous Affairs v W157/00A (2002) 125 FCR 433 at 460-461. 37 Again, notwithstanding particular (ii)(A) - (C) above, it is clear that information in relation to each of these matters was placed before the Delegate. At the very least, the applicants have not shown that the Delegate failed to take those matters into account. 38 So far as particular (ii)(D) is concerned, any concern about interference with the liquidator's functions was not apparent in correspondence before ASIC, nor was it referred to by Mr Fordyce when he was asked by ASIC about the liquidator's position. There is no evidence from the liquidator that he has, at any time, ever perceived a risk of interference to his functions from examinations being conducted by some other 'eligible applicant'. The authorisation of Mr Carpenter as an 'eligible applicant' does not have the result that the liquidator ceases to have that status. Hence, there is no warrant in the statutory scheme for an implication that ASIC is bound to make enquiries of all or some of the persons falling within the definition of 'eligible applicant' before giving a written authorisation to some other person. 39 Particular (iB) is not made out. The attitude of the liquidator of Pioneer concerning the matters particularised is not a mandatory relevant consideration. The question before ASIC was not whether the liquidator had acted properly or improperly in coming to his decision not to institute proceedings against the Bank until outstanding issues were resolved. All that ASIC had to decide was whether the range of 'eligible applicants' should be expanded so as to include Mr Carpenter. If more than one eligible applicant made an application to the Court under s 596B of the Corporations Act, then it would be a matter for the Court to determine how any conflict between the competing applications should be resolved. 40 In any event, ASIC had before it the letter from the liquidator of 13 November 2003 which disclosed his position, as well as the letter of 22 December 2003 from the applicants' solicitors. This correspondence recorded that the liquidator had advised Mr Carpenter's solicitors that he does not propose to conduct an examination unless and until he has secured sufficient funds or funding to conduct not only the examinations but also the case which, in Mr Carpenter's contention, Pioneer has against the Bank. The correspondence also disclosed that the liquidator had no funds to be able to bring any action. These matters were also referred to in Ms Tuck's memorandum of 8 January 2004. Information was thus placed before the Delegate as to the liquidator's attitude concerning the proposed proceedings and the proposed examinations. 41 Grounds (iC), (iD) and (iE) allege a failure to take into account matters referred to in the judgment of Austin J. The issue with which Austin J was concerned was whether Mr Thomas should be removed as liquidator. In the course of coming to a decision upon that question, Austin J found that there was no impropriety in the manner in which the liquidator had approached the possible claim of Pioneer against the Bank. For the reasons earlier given, whether or not the liquidator was justified in the stance which he took was not a mandatory relevant consideration, as ASIC was entitled to grant a written authorisation in favour of Mr Carpenter without an enquiry as to whether the liquidator was guilty of any relevant default.

Wednesbury unreasonableness 42 Again, there was no contest as to the applicable principles. A decision will only be vitiated on this ground if no decision-maker, acting reasonably, could have made the decision, or the decision was so unreasonable that no reasonable person could have come to it. In applying this standard, it has often been stated that the Court must proceed with caution lest it exceed its supervisory role by reviewing the decision on the merits. It is not enough to show that another decision-maker might have reached a different result. Nor is it sufficient if the Court is of the view that a different decision would have been more appropriate: see Cubillo v Commonwealth of Australia (2001) 112 FCR 455 at 521. 43 In the applicant's submission, the matters which were before the Delegate raised a sufficient question to require an enquiry of the liquidator as to the basis on which he was not prepared to conduct the examinations, and that failure to make that enquiry was manifestly unreasonable. Reliance was placed on the well known observations of Wilcox J in Prasad v Minister for Immigration & Ethnic Affairs (1985) 6 FCR 155 at 170 and upon decisions of the Full Court in Luu v Renevier (1989) 91 ALR 39 at 49 and Tickner v Bropho (1993) 40 FCR 183. 44 If I am right in my conclusion that the liquidator's attitude was not a matter which was mandatorily relevant, then there is no manifest unreasonableness in ASIC not making enquiries of the liquidator directly to ascertain why he had adopted the position disclosed in his letter of 13 November 2003. In any event, ASIC did make enquiries on that question from the solicitor for Mr Carpenter and received a response which was consistent with the liquidator's letter. There was no obligation upon ASIC to make the enquiries of the liquidator for which the applicants contend, or manifest unreasonableness in failing to pursue that line of enquiry.

Conclusion 45 The application should be dismissed with costs. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Counsel for the Applicants: T Bathurst QC, R Beech-Jones

Solicitor for the Applicants: Minter Ellison

Counsel for the First Respondent: J Griffiths SC, A Abadee

Counsel for the Second Respondent: J Garnsey QC, B Connell