Court of Appeal (WA)|2006-05-31|Before: Ms J, Steytler P, McLure JA, Buss JA

The Finance Brokers Supervisory Board v Van Stokkum [2006] WASCA 97 (31 May 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : THE FINANCE BROKERS SUPERVISORY BOARD -v- VAN STOKKUM [2006] WASCA 97

BETWEEN : THE FINANCE BROKERS SUPERVISORY BOARD

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : BERNARDUS HUBERTUS VAN STOKKUM AND THE PEOPLE NAMED IN SCHEDULE A & ORS - v - THE FINANCE BROKERS SUPERVISORY BOARD [2005] WASC 2004

Practice and procedure - Interlocutory appeal - Statutory immunity defence struck out - Whether defence arguable - Refusal of leave to amend defence - Turns on own facts

Rules of the Supreme Court 1971 (WA), O 20 r 19(1)(a)

Bell v The State of Western Australia [2004] WASCA 205; (2004) 28 WAR 555

Bell v The State of Western Australia [2005] HCA Trans 561

Cowell v Corrective Services Commission of New South Wales (1988) 13 NSWLR 714

Darling Island Stevedoring and Lighterage Co Ltd v Long [1957] HCA 26; (1957) 97 CLR 36

De Bruyn v South Australia (1990) 54 SASR 231

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21

Kimberley Downs Pty Ltd v The State of Western Australia, unreported; SCt of WA; Library No 6414; 25August 1986

Parker v The Commonwealth of Australia [1965] HCA 12; (1965) 112 CLR 295

State of New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511

Twine v Bean's Express Ltd (1946) 62 TLR 458

671122 Ontario Ltd v Sagaz Industries Canada Inc [2001] 204 DLR (4th) 542

A Solicitor v Council of the Law Society of New South Wales [2004] HCA 1; (2004) 216 CLR 253

Australian National Airlines Commission v Newman [1987] HCA 9; (1987) 162 CLR 466

Australian Securities and Investments Commission v Rich (No 3) [2003] NSWSC 328; (2003) 45 ACSR 305

Australian Securities Commission v Kippe and Forgie (1996) 67 FCR 499

Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300

Bell v The State of Western Australia [2003] WADC 18

Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408

Board of Fire Commissioners (NSW) v Ardouin [1961] HCA 71; (1961) 109 CLR 105

Bone v Robins; Ex parte Bone [1990] WAR 94

Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512

Broom v Morgan [1953] 1 QB 597

Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Clyne v The New South Wales Bar Association [1960] HCA 40; (1960) 104 CLR 186

Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194

Commissioner of Railways (Qld) v Ruprecht [1979] HCA 37; (1979) 142 CLR 563

Coulthard v Henneker [2003] WASCA 187

Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1

Dalgety Australia Ltd v Rubin, unreported; SCt WA, Library No 5485; 24 August 1984

Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366

Eastman v Director of Public Prosecutions (ACT) [2003] HCA 28; (2003) 214 CLR 318

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241

Everett v The State of Western Australia & Anor [2001] WADC 18

Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395

Grljusich v Andrews [2003] WASCA 206

Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365

Hughes and Vale Pty Ltd v The State of New South Wales (No 2) [1955] HCA 28; (1955) 93 CLR 127

Imperial Chemical Industries Ltd v Shatwell [1964] UKHL 2; [1965] AC 656

Inglis v Moore (1979) 46 FLR 3

Jacobi v Griffiths (1999) 174 DLR (4th) 71

Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; (2000) 104 FCR 564

L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225

Little v State of Victoria [1998] 4 VR 596

London Drugs Ltd v Kuehne and Nagel International Ltd [1992] 97 DLR (4th) 261

McNamara (McGrath) v Consumer, Trader and Tenancy Tribunal [2005] HCA 55; (2005) 79 ALJR 1789

Morelle Ltd v Wakeling [1955] EWCA Civ 1; [1955] 2 QB 379

Packhard v Transport, Trading & Agency Co Ltd & Weir (1912) 14 WALR 191

Petracaro v Commissioner of Consumer Affairs (1994) 62 SASR 387

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

Puntoreiro v Water Administration Ministerial Corporation [1999] HCA 45; (2000) 199 CLR 575

Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330

Re Real Estate and Business Agents Supervisory Board; Ex parte Cohen [1999] WASCA 47; (1999) 21 WAR 158

Registrar, Real Estate and Business Agents Supervisory Board & Anor v Barnett, unreported; FCt SCt of WA, Library No 970426; 26 August 1997

Ringelstein v Redford Cattle Co Pty Ltd [1994] QCA 14; [1995] 1 Qd R 433

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436

Scott v Davis (2000) 204 CLR 333

Sobey v Commercial and Private Agents Board (1979) 22 SASR 70

State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146

Staveley Iron and Chemical Co Ltd v Jones [1956] AC 627

Sutherland Shire Council v Finch [1970] HCA 49; (1970) 123 CLR 657

Tavelli v Johnson, unreported; SCt of WA; Library No 960693; 25 November 1996

The New South Wales Bar Association v Evatt [1968] HCA 20; (1968) 117 CLR 177

Theophanous v Herald & Weekly Times Ltd [1994] HCA 46; (1994) 182 CLR 104

Wilson v Metaxas [1989] WAR 285

Xenophon v State of South Australia [2000] SASC 327; (2000) 78 SASR 251

Ziems v The Prothonotary of the Supreme Court of New South Wales [1957] HCA 46; (1957) 97 CLR 279

2 MCLURE JA: This is an application for leave to appeal from interlocutory orders made by Master Sanderson in an action by thousands of investors (respondents/plaintiffs) against the Finance Brokers Supervisory Board ("Board") (the appellant/defendant). On 11 November 2003, Master Sanderson ordered that par 269 and par 270 of the defence be struck out and he refused leave to amend the defence to insert a new par 265A. Paragraphs 269 and 270 raised the defence of statutory immunity under s 87 of the Finance Brokers Control Act 1975 (WA) ("the Act"). Proposed par 265A related to the Board's jurisdiction to hold an inquiry and take disciplinary action under s 82 and s 83 of the Act respectively.

3 By the Finance Brokers Control Amendment Act 2004 (WA) the Board was dissolved and its rights, liabilities and obligations devolved on the Commissioner acting on behalf of and in the name of the State. At the conclusion of the application for leave, counsel for the appellant applied to substitute the State of Western Australia in place of the Board as the appellant/defendant. The application was unopposed and the order made.

"Immunity of Board and officers

No liability shall attach to a member or the deputy of a member, or the Registrar, an inspector, or any other officer, of the Board for any act or omission by him, or by the Board, in good faith and in the exercise or purported exercise of his or its powers or functions, or in the discharge or purported discharge of his or its duties under this Act."

"269. At all material times each of the members of the Board, the deputies of members, and officers of the Board, including the Registrar and inspectors, conducted themselves in good faith and in the exercise or purported exercise of the powers or functions under the Act or, as the case may be, in the discharge or purported discharge of their duties under the Act.

270. By reason of section 87 of the Act and the matters pleaded in paragraph 269 above:

(a) no liability can in any event attach to any members of the Board, to any deputies of members or to any officers of the Board, including the Registrar and inspectors, for any misfeasances and breaches of duty as pleaded respectively in paragraphs 31 to 39 and 58 to 67 of the Statement of Claim; and

(b) in the absence of any such liability, the Board is in any event not liable for any misfeasances or breaches of duty as pleaded respectively in paragraphs 31 to 39 and 58 to 67 of the Statement of Claim."

6 The statement of claim exceeds 200 pages. For the purposes of this application it is sufficient to note that the respondents claim against the Board for misfeasance in public office and negligence. In respect of each cause of action, the respondents plead that the Board is both directly liable and vicariously liable. As to the latter, the respondents claim the Board is vicariously liable for specified acts and omissions of, inter alia, members and other officers of the Board including Registrars and inspectors (defined in the pleading as "Board personnel"). On the hearing of the application, the Solicitor-General confirmed what is apparent from the pleading, namely that the immunity defence responds only to those claims in which it is alleged that the Board is vicariously liable for the acts and omissions of Board personnel.

7 In essence, the Board's defence in par 269 and par 270 was that it could not be vicariously liable for the acts or omissions of Board personnel because the Board personnel had immunity under s 87 of the Act. The learned Master referred to and acknowledged that there were two conflicting lines of authority on the point which depended (at least in part) on different views as to the jurisprudential basis for the principle of vicarious liability. The respondents relied upon the judgment of Kitto J in Darling Island Stevedoring and Lighterage Co Ltd v Long [1957] HCA 26; (1957) 97 CLR 36 at 60 - 65. Fullagar J in that case states the contrary and conflicting view. The Master continued:

"22 There is nothing to be gained by a Master sitting at first instance attempting a detailed analysis of the different jurisprudential theories which have led to opposing conclusions. I have simply to follow one line of authority or the other. That being the case, I would follow the Darling Island line of authority. I find the reasoning of Kitto J utterly compelling. On that basis then, the pleas in par 269 and 270 cannot stand and they should be struck out.

23 In the ordinary course I would not be inclined to deal with the strike-out application of par 269 and 270 on an interlocutory basis. Neither paragraph will require any evidence. In a trial that was to run for a few days it would be proper to leave the issues raised by these paragraphs of the defence to the trial Judge who could deal with the issue in the course of his or her reasons. That would avoid the necessity for the defendants to run an interlocutory appeal. But this is no ordinary case ... None of these issues, either alone or taken together, will, when resolved in the plaintiffs' favour, result in a knock-out blow to the defendants. But in lengthy and complex litigation such as this, there is much to be gained, in my view, from attempting to remove as issues as many matters as possible."

8 The Master did not base his decision on the ground that he was required by binding authority to do so. After the Master published his reasons, the Full Court handed down its decision in Bell v The State of Western Australia [2004] WASCA 205; (2004) 28 WAR 555. The Full Court in Bell did not follow the line of authority represented by Kitto J's judgment in Darling Island.

9 The respondents in this Court contended that the Master was correct in following Kitto J in Darling Island because that judgment was consistent with binding High Court authority in support of the "master tort theory" of vicarious liability, which theory the respondents further contended required the Court to conclude that vicarious liability of the Board could co-exist with the statutory immunity of Board personnel. The respondents also filed a notice of contention seeking to affirm the Master's decision on the ground that pars 269 and 270 did not disclose a reasonable defence by reason of the proper construction of s 87 of the Act.

10 Before addressing those submissions it is necessary to refer to Bell. The central question in Bell was whether the State could be vicariously liable for the negligent acts of an official if that official was entitled to immunity under s 124 of the Western Australian Marine Act 1982 (WA) ("Marine Act"). The Court answered that question in the negative. I concluded (and Le Miere J agreed) that the balance of authority and the rejection of the master tort theory of vicarious liability supported the conclusion that, at common law, immunity from liability of the servant could not co-exist with vicarious liability of the employer and that s 124 did not create a liability where none would otherwise exist.

11 Section 124 of the Marine Act provides:

"Immunity of Minister and officials

No liability shall attach to the Minister, the chief executive officer or any other official of the Department, or to any person acting with the authority or on the direction of the Minister or the chief executive officer in good faith and in the exercise or purported exercise of a power or in the discharge or purported discharge of a duty under this Act."

12 Although the State contended in Bell that s 124 on its proper construction also rendered the State immune from direct liability for negligence, it was unnecessary to answer that question because the parties agreed that the trial Judge had not found the State to be directly liable in negligence. The appellant in Bell applied for, and obtained, special leave to appeal to the High Court on the question answered by the Full Court. Special leave was granted on the basis that the question had not been settled at High Court level (Bell v The State of Western Australia [2005] HCA Trans 561 at 4). However, the matter settled before the hearing of the appeal by the High Court and the appeal was discontinued.

13 The respondents in this application contended that Bell is not a binding precedent and should not be followed "because it was decided per incuriam, having been decided without the Court having been referred to or having considered binding authority". It is correct that no party in Bell claimed that there was binding authority as to the juristic basis of vicarious liability (or on the question whether vicarious liability of the employer could co-exist with the employees' immunity from liability).

14 The respondents to this application submitted that there is binding High Court authority that the foundation for vicarious liability is the master tort theory rather than the servant tort theory. Under the master tort theory the employer is said to have an independent duty of care which is breached by the acts and omissions of the employee being attributed to the employer (in circumstances which do not give rise to personal liability). Under the servant tort theory the employers' liability is derivative in that the employees' tort is attributed to the employer. The respondents contended that there is majority support for the master tort theory in Darling Island (Webb, Kitto and Taylor JJ); Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271 at 278 (Barwick CJ), 285 (Taylor J, Kitto J agreeing) and 284 (McTiernan J); and Stoneman v Lyons [1975] HCA 59; (1975) 133 CLR 550 at 573 - 574 and 577 (Mason J with whom Barwick CJ and Gibbs J agreed), and 562 (Stephen J).

15 I am not persuaded that approval of the master tort theory is (or unarguably is) part of the ratio in Darling Island or that Webb J is unarguably of the same view as Kitto and Taylor JJ on that issue. The question for determination in Darling Island was whether the phrase "person-in-charge" in subsidiary legislation should be construed to include the employer of the person actually exercising control. As Fullagar J observed (at 56), it was neither necessary nor profitable in that case to inquire into the nature, origin or theoretical justification of the doctrine of vicarious liability. Notwithstanding that statement, he did so and Fullagar J (with Williams J) supported the servant tort theory. Kitto and Taylor JJ support the master tort theory. On my reading, Webb J is silent on the subject.

16 I am also not persuaded that acceptance of the master tort theory is necessarily part of the ratio in Ramsay v Pigram or Stoneham v Lyons. The issue in Ramsay v Pigram was whether the respondent was estopped from asserting negligence by a police officer in the course of his duty. The respondent was injured when a government owned vehicle driven by the police officer collided with the respondent's vehicle. The police officer had sued the respondent for personal injuries arising out of the collision. The respondent was found to be negligent and the police officer was found not guilty of contributory negligence. Later, the respondent sued the appellant, as nominal defendant representing the government, for personal injuries suffered in the same collision. The Court held there was no issue estoppel because there was no privity of interest between the appellant (nominal defendant) and the police officer to entitle the appellant to rely on the findings in the police officer's action. The appellant's liability, if any, to the respondent, depended on the content of the duty owed by the owner of the car (the New South Wales Government) by virtue of s 16 of the Motor Vehicles (Third Party Insurance) Act 1942 (NSW) (Barwick CJ at 279, McTiernan J at 282 - 283, Taylor J at 285, with whom Kitto J agreed, and Windeyer J at 289). Section 16 provided that the driver of certain vehicles was deemed to be the agent of the owner acting within the scope of his authority for the purpose of enabling a third party injured by the negligence of the driver to recover against the insured owner. A principal is liable for loss or damage caused by the tort of his agent if the agent was acting within the scope of the agent's authority. It has not been established that a principal's liability for the agent's tort is "truly vicarious": Bowstead & FMB Reynolds Reynolds on Agency (17th ed) 2001 at par 8-177 to par 8-183. On my reading of the judgments in Ramsay, only Taylor J (and Kitto J) expressly characterises the statute as imposing vicarious liability on the owner of a vehicle for the acts or omissions of the driver. Three members of the Court (Barwick CJ, McTiernan and Windeyer JJ) also concluded that the issues in the two actions were not identical. They did so because of their view that the owner of the car owed an independent duty, which was not necessarily co-extensive with the personal duty of the driver, to persons injured by the negligence of the driver. However, that can occur regardless of the juristic basis for vicarious liability: see Twine v Bean's Express Ltd (1946) 62 TLR 458 (an employer was not liable for the negligence of his employee in the course of his duties). Barwick CJ's approval of Kitto J's judgment in Darling Island is arguably obiter.

17 The issue in Stoneman v Lyons was whether an employer was liable in trespass to an adjoining land owner for the act of an independent contractor. That has, at best, a remote connection with the juristic basis for vicarious liability. Further, more recent High Court authority suggests that legal policy may explain the existence and scope of the doctrine of vicarious liability rather than the master (or indeed servant) tort theory: Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 at 37 per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ, at 55 per McHugh J; State of New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 at 553 per Gaudron J, at 580 - 581 per Gummow and Hayne JJ, at 611 - 614 per Kirby J.

18 In any event, even if the master tort theory is the rationale for vicarious liability, there is direct High Court authority on the central issue of the effect of employee immunity on vicarious liability. Windeyer J in Parker v The Commonwealth of Australia [1965] HCA 12; (1965) 112 CLR 295 concluded that immunity from liability of the servant cannot co-exist with vicarious liability of the employer whatever the jurisprudential basis of vicarious liability. He said (at 300 - 301):

"Whether the so-called 'vicarious' liability of a master for the tortious acts of his servant arises because the master is answerable for his servant's torts, or because the acts of his servant are imputed to him so as to make him himself liable in tort, has been much discussed and has provoked differing views, judicial and academic ... But, however the principle of liability should be expressed, I think that the Commonwealth is only liable for the acts or omissions of a servant if the servant would himself be liable." (footnotes omitted)

19 This statement of principle has been applied by intermediate courts of appeal in South Australia (De Bruyn v South Australia (1990) 54 SASR 231 at 235 per King CJ) and New South Wales (Cowell v Corrective Services Commission of New South Wales (1988) 13 NSWLR 714 at 731 - 733 per Clark JA).

20 That brings me to the question of statutory construction. The approach taken in Bell (and De Bruyn and Cowell) is that at common law, vicarious liability does not attach for the negligent acts or omissions of another if that other is immune from liability. On that view of the common law, the question is whether the statutory provision granting immunity expressly or impliedly preserves vicarious liability in the State. Thus, the statutory construction question addressed in Bell was not whether s 124 of the Marine Act granted immunity to the State but rather whether the section altered or abrogated the common law rule so as to preserve the State's vicarious liability. If Bell correctly states the common law, it is arguable that s 87 of the Act does not manifest an intention to alter the common law so as to make the Board vicariously liable for the acts of Board personnel who are immune from liability.

21 For these reasons, I am satisfied that the defence in pars 269 and 270 is at least arguable. That being the case, the Master erred in striking out pars 269 and 270. He failed to apply the correct test. A court may strike out a pleading if it discloses no reasonable defence: O 20 r 19(1)(a) of the Rules of the Supreme Court 1971 (WA). A defence will not be reasonable if it is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 130. Making the same point another way, a strike-out application must fail if the defence is arguable. A court should not summarily reject a defence where there is a reasonable possibility that, as the law develops, the legal principle relied upon will be confirmed: Kimberley Downs Pty Ltd v The State of Western Australia, unreported; SCt of WA; Library No 6414; 25August 1986 at 6 per Master Staples.

22 In the circumstances confronting the Master, being a conflict of what he regarded as non-binding authority, it was not his role "simply to follow one line of authority or the other". The sole question for him was whether the defence was arguable. The existence of conflicting lines of (non-binding) authority, one of which supported the defence, was sufficient in itself to establish that the defence was arguable and thus reasonable. That being so, the Court's discretion to strike out was not enlivened. The Master was required to dismiss the application. Accordingly, it is not necessary to address the discretionary considerations to which the Master had regard in par 23 of his reasons. However, I wish to record my disagreement with his judgment that there was much to be gained from summarily resolving the question as early as possible. The determination of the issue would not resolve the litigation and would not materially reduce the factual matters for determination. Although it is incorrect to say that proof of the defence will not require any evidence, it is the case that there is a significant factual overlap between what the respondents have to prove to establish misfeasance in public office and the requirement of good faith in s 87. Further, having regard to the nature of the issue and the conflicting lines of authority, the summary dismissal of the defence would inevitably result in an appeal to this Court and this Court is required to confine itself to the only relevant issue, namely whether the defence was arguable.

23 The statement of claim contains a number of allegations that the Board had knowledge that finance brokers were engaging in conduct that was inconsistent with the pooled mortgage and prescribed interest provisions of the Corporations Law ("the alleged conduct"). It is then pleaded that the Board was guilty of misfeasance in public office and negligent because of a failure or refusal by the Board to hold an inquiry under s 82 of the Act into whether finance brokers had engaged in the alleged conduct and to discipline those finance brokers who had engaged in such conduct pursuant to s 83 of the Act. Proposed par 265A responds to those allegations. The negligence plea also covers other alleged misconduct (defined in the pleading as "predatory conduct") but par 265A does not respond to those claims. Paragraph 265A provided:

"As to the allegations in the Statement of Claim that the Board, its members or deputy members, Registrar or inspectors were aware of, but did not take disciplinary action under s.83 of the Act in relation to, conduct by finance brokers inconsistent with the pooled mortgage and prescribed interest provisions of the Corporations Law, ('the alleged conduct'), the Defendant says:

(a) the Board had jurisdiction under section 82 of the Act to hold an inquiry into whether there had been alleged conduct by a finance broker, only if, and to the extent that, any such inquiry was solely for the purpose of determining whether the finance broker had, by the alleged conduct, acted in conformity with the special conditions, if any, of the finance broker's licence and business certificate and with the Code of Conduct and the requirements of the Act in force at the time the alleged conduct occurred (together called 'the regulatory requirements');

(b) further or in the alternative to sub-paragraph (a), the Board had power in the course of an inquiry under section 82 to examine the alleged conduct only for the purpose of determining whether such conduct was in conformity with the regulatory requirements;

(c) the Board could be satisfied for the purposes of section 83 of the Act that proper cause existed for disciplinary action against a finance broker in respect of the alleged conduct only if:

(i) a valid enquiry under section 82 had been held by the Board; and

(ii) the finance broker -

(A) had been convicted under the Corporations Law for the alleged conduct and that conduct was such as, within the meaning of section 83(2)(b) of the Act, would or might prejudice any rights or interests of the borrower or lender or prospective borrower or lender, or

(B) had by the alleged conduct breached the regulatory requirements, or

(C) was, by reason of the alleged conduct, unfit, within the meaning of section 83(2)(d) of the Act, to hold a licence;

(i) was not the subject of a conviction of a finance broker for a breach of the Corporations Law;

(ii) was not such as to prejudice or potentially prejudice any rights or interests of the borrower or lender or prospective borrower or lender within the meaning of section 83(2)(b) of the Act;

(iii) was not capable of breaching, and did not breach, the regulatory requirements;

(iv) did not render the finance broker unfit to hold a licence, within the meaning of section 83(2)(d) of the Act;

(i) the Board had no jurisdiction under section 82 of the Act to inquire into the alleged conduct; and

(ii) the Board had no jurisdiction or power to take disciplinary action against a finance broker under section 83 of the Act in relation to the alleged conduct."

24 Section 81 of the Act provides that the Board may approve a code of conduct for finance brokers. It has done so. The current code is a comprehensive statement of finance brokers' duties to parties, borrowers and lenders, including a duty not to knowingly or recklessly mislead or deceive. Section 82 is headed "Inquiries into conduct of finance brokers". It materially provides:

"(1) The Board may on the application of the Registrar, an inspector, or any other person, or of its own motion hold an inquiry into the conduct of any finance broker for the purpose of determining whether or not the finance broker is acting in conformity with the special conditions, if any, of his licence and business certificate and with the finance brokers code of conduct and is complying with the requirements of this Act."

(1) If after conducting an inquiry under section 82(1) the Board is satisfied that proper cause exists for disciplinary action, the Board may do any one or more of the following things -

(a) reprimand or caution the finance broker;

(b) impose a fine not exceeding $1 000 on him; and

(c) suspend or cancel his licence and any business certificate in respect thereof and, in addition, disqualify him either temporarily or permanently, or until the fulfilment of any condition which may be imposed by the Board, or until the further order of the Board, from holding a licence or business certificate, or both.

(2) There shall be proper cause for disciplinary action if -

(a) the finance broker improperly obtained a licence or business certificate;

(b) the finance broker, or any person acting with the authority or upon the instructions of the finance broker, has, in the course of any dealings with a borrower or a lender or a prospective borrower or lender, been guilty of conduct that constitutes a breach of any law other than this Act and that prejudices or may prejudice any rights or interests of the borrower or lender or prospective borrower or lender;

(c) the finance broker is acting or has acted in breach of -

(i) a special condition of his licence or business certificate;

(ii) the requirements of this Act; or

(iii) the finance brokers code of conduct; or

(d) any other cause exists that, in the opinion of the Board, renders the finance broker unfit to hold a licence."

26 There are three parts to the proposed defence. First, subpars (a), (b), (d)(iii) and (e)(i) of par 265A plead that the Board had no jurisdiction to conduct an inquiry into the alleged conduct because it would not have been an inquiry for one of the purposes in s 82(1) of the Act. The argument is as follows. Under s 83(1), it is a precondition for taking disciplinary action against a finance broker that the Board has conducted an inquiry under s 82(1) of the Act. An inquiry under s 82(1) may be held only for the specific purposes there set out, namely to determine whether or not the finance broker is acting in conformity with the special conditions, if any, of his licence and business certificate, complying with the finance brokers' code of conduct or complying with the requirements of the Act. The alleged conduct does not fall within any of the stated purposes. This links with the second part of the proposed defence and will be discussed in that context. However, it is apparent from the text of the legislation that the issues to be resolved are whether there is a necessary conflict between the scope of the inquiry power in s 82(1) and the matters listed in s 83(2) and if so, how the conflict is to be reconciled.

27 Secondly, subpars (c)(ii)(C), (d)(iv) and (e)(ii) of par 265A plead that the Board had no jurisdiction to take disciplinary action against a finance broker in respect of the alleged conduct under s 83(2)(d) of the Act. The appellant's contention was that disciplinary action could be taken under that paragraph only if the Board was satisfied, following the conduct of an inquiry under s 82(1), that the finance broker was unfit to hold a licence. Other aspects of this plea are that s 83(2)(d) excludes the matters referred to in subpars (a) - (c) of s 83(2) and that the alleged conduct did not render the finance brokers unfit to hold a licence.

28 The Master concluded that "the discretion given to the Board to [a]ct under subpar (2)(d) [of s 83] is wide and unfettered and there is no warrant at all for limiting its scope as the [appellant] would have it in the proposed par 265A". The Master rejected the contention that the Board's power to conduct an inquiry under s 82 was limited to the purposes enumerated in s 82(1). Such an approach he said "would render the powers of the Board to conduct an inquiry so limited as to be meaningless". That is an obvious overstatement, particularly when regard is had to the extensive duties imposed on finance brokers in the Code of Conduct. The Master did not consider whether there was a conflict between s 82(1) and s 83(2) or the ways any conflict may be reconciled.

29 The Master also determined that s 83(2)(d) empowered the Board to conduct an inquiry to determine whether the conduct of the finance broker was contrary to the provisions of the Corporations Law in the absence of any conviction for a breach of that law. However, he did not address the argument that s 83(2)(d) excludes the matters in subpars (a) - (c) (relying on the words "any other cause" in par (d)). Nor did he consider the claim that the alleged conduct did not render the finance brokers unfit to hold a licence within the meaning of s 83(2)(d) of the Act. Whether the Board could have been satisfied that the alleged conduct rendered the finance brokers unfit to hold a finance broker's licence would depend on the evidence that could have been placed before the Board and whether that evidence was capable of supporting a finding that the alleged conduct rendered the finance broker unfit.

30 Thirdly, subpars (c)(ii), (d)(ii) and (e)(ii) of par 265A plead that the Board had no jurisdiction or power to take disciplinary action against a finance broker under s 83(2)(b) in relation to the alleged conduct. The appellant claims that the Board could only be satisfied that a finance broker was guilty of conduct that constituted a breach of a law other than the Act if it became known to the Board that a broker had been convicted under the Corporations Law in respect of the alleged conduct. It relies on the ordinary and natural meaning of the term "guilty" and the reference to "conduct that constitutes a breach of any law" to limit the Board's jurisdiction to those cases where a finance broker had been convicted of a breach of a criminal law. In support of this proposition it also relies on the different terminology used in s 83(2)(b) and s 83(2)(c); the fact that s 82(1) does not permit the Board to hold an inquiry for the purpose of determining whether or not a finance broker is guilty of conduct that constitutes a breach of any other law; that breaches of the prescribed interest provisions of the Corporations Law were at the relevant time prosecuted by the Australian Securities Commission; and finally that a broker could be found to have committed an offence without the advantages afforded to him in a criminal trial.

31 It is also pleaded that the Board had no jurisdiction to act under s 83(2)(b) because the alleged conduct was not such as to prejudice or potentially prejudice any rights or interests of the borrower or lender or prospective borrower or lender within the meaning of s 83(2)(b). Whether or not that is so is a matter for evidence. The Master rejected without explanation the contention that s 83(2)(b) is limited to circumstances where a broker has been convicted of an offence under any other law and did not deal with the no prejudice aspect of the proposed defence.

32 This is not a case where the facts are indisputable and permit of only one conclusion. The outcome on two aspects of the proposed defence could be altered by evidence adduced at trial. Those aspects are whether

the alleged conduct rendered the finance brokers unfit to hold a licence within the meaning of s 83(2)(d) and whether it prejudiced any rights or interests of the borrowers or lenders, or prospective borrowers or lenders within the meaning of s 83(2)(b). The Master erred in depriving the appellant of its right to have these issues determined at trial.

33 Although other aspects of the defence do not depend on disputed facts, it cannot be said that the statutory construction of s 82 and s 83 contended for by the appellant is unarguable. In particular, I remain to be satisfied that an inquiry for one or more of the purposes stated in s 82(1) could not possibly result in findings that establish proper cause for disciplinary action under each paragraph of s 83(2) which in turn enlivens the Board's power to impose one or more of the penalties specified in s 83(1). That is, there may be no necessary conflict in the scope of s 82(1) and s 83(2) of the Act. The trial Judge who has the benefit of hearing the evidence and submissions, not only in relation to the alleged conduct, but also in relation to the so-called predatory conduct, will be in a significantly better position to resolve the issues of statutory construction that arise.

34 I am satisfied that proposed par 265A raises real questions of fact and law that ought to be determined at trial. It follows that the Master erred in refusing leave to amend to insert par 265A in the defence.

35 I would grant leave to appeal, allow the appeal, set aside orders 2, 4 and 6 of the orders made by Master Sanderson on 11 November 2003 and in lieu thereof order that:

(a) the appellant/defendant have leave to amend the defence to insert par 265A of the minute of proposed amendments to defence filed 30 September 2003; and

(b) the respondents/plaintiffs' application to strike out pars 269 and 270 of the defence be dismissed.

Brokers Control Act 1975

Brokers Control Amendment Act 2004

Vehicles (Third Party Insurance) Act 1942

Australian Marine Act 1982

The Finance Brokers Supervisory Board v Van Stokkum [2006] WASCA 97

At a glance

Court

Decision date

Before

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Judgment (145 paragraphs)

The Finance Brokers Supervisory Board v Van Stokkum [2006] WASCA 97 (31 May 2006)

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Legislation Cited (4)

Cases Cited (54)