Wooldridge v Australian Securities and Investments Commission

PRINCIPLES RELEVANT TO THE STAY APPLICATION 8 Rule 36.08 of the Federal Court Rules 2011 (Cth) provides as follows: 36.08 Stay of execution of proceedings under judgment appealed from (1) An appeal does not: (a) operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or (b) invalidate any proceedings already taken. (2) However, an appellant or an interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. (3) An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind. 9 In Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685, the New South Wales Court of Appeal identified a number of principles guiding the exercise of discretion in granting a stay. Relevantly for the stay application before me the Court said (at 694-5): …The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties. The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears. The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay. Sometimes as a condition of the grant of a stay, where funds are available, a court will impose on the applicant the payment of the whole, or part, to the judgment creditor. Even where no order is made for the payment of part of a verdict, it is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties. … Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay. Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay. Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case. (citations omitted) 10 The foregoing principles have been applied in a number of cases in this Court: see Seafolly Pty Ltd v Madden (No 3) [2013] FCA 316 at [19] and the cases cited therein. 11 It is to be first appreciated that a first instance decision is not, and should not be treated as, a provisional decision. This is reflected in and acknowledged by r 36.08(1) of the Federal Court Rules 2011 (Cth). As Gleeson CJ observed in Swain v Waverley Municipal Council (2005) 220 CLR 517, at [2], the "system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal". There is a prima facie assumption that the judgment the subject of the appeal is correct. The Court should not deprive a person of the fruits of victory by granting a stay unless the circumstances warrant the Court's intervention. 12 Further, the application before me involves a disqualification order being made upon the motion of a regulator. ASIC is responsible for administering the Act and must strive to "take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it": Australian Securities and Investments Commission Act 2001 (Cth), s 1(2)(g). Self-evidently, ASIC "seeks the remedy it does for public and not its own private purposes": see Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at [155]. 13 In the context of litigation commenced by a regulator, the exercise of discretion to grant a stay needs to take into account the protection of the public. In Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460 at 464, in refusing a stay pending special leave to appeal, Kirby J observed: In the exercise of the jurisdiction to provide a stay, it has often been emphasised that cases involving a stay of the operation of the criminal law or of laws designed to protect the public (eg deregistration of a professional lawyer or medical practitioner) are in a class different from cases involving no more than the suspension of the operation of orders affecting two private litigants only. 14 In considering a stay of disqualification orders, the underlying reasons for the disqualification orders sought to be stayed must be considered. Disqualification orders are both punitive and protective of the public, and have an element of general deterrence. 15 The courts have emphasised that, in these types of cases, the protection of the public and the public interest considerations in deciding to grant stay are entitled to significant weight: see, eg, New South Wales Bar Association v Stevens (2003) 52 ATR 602 at 621; [2003] NSWCA 95 at [91], [103], and [104]. 16 As I mentioned earlier, the Court should not give the impression that disqualification orders are provisional upon confirmation on appeal, lest the public purpose of making such orders in the first place be undermined: see Gray v Commissioner for Corporate Affairs (Vic) (1988) 13 ACLR 516 ('Gray') at 518 and Dwyer v National Companies and Securities Commission (No 2) (1988) 15 NSWLR 285 at 287. 17 In addition, too much weight should not be given to the detriment that the disqualified person directly or indirectly may suffer as a result of being unable to manage corporations. The inability to manage corporations is the purpose and inevitable consequence of the disqualification order. The prejudice of not being able to, for example, act as a director until an appeal is determined is not in itself a sufficient reason to grant a stay. As Marks J observed in Gray at 517: I do accept that if the appeal turns out to be successful some harm will have been done to the applicant to the extent that he has been unable to act as a director … However, this is the type of harm which is potential in all cases where a decision at first instance is vulnerable to being overturned on an appeal. I accept that there is a principle that the courts ought not to act so as to render nugatory the appeal against an order made. This is a reference to circumstances … in which the consequences of the order would be fully experienced by the time the appeal was heard and determined. 18 Where there is an application for a stay of a disqualification order pending appeal, the relevant principles to apply can be listed as follows: (1) The onus is on an applicant to persuade the Court that a stay is appropriate. (2) The Court should not treat the disqualification order as provisional. (3) The Court in exercising its discretion will need to: (a) make some assessment of the prospects of success of the appeal, but only to the extent necessary (which would not normally involve a detailed consideration of the merits of the appeal). If the prospects of success of the appeal are so strong or overwhelming that the interests of justice could only be served by granting a stay, a stay would be the appropriate order; (b) consider the nature of the disqualification order, the seriousness of the findings and the need to protect the public (which are factors to be given significant weight); and (c) consider the hardship (whether pecuniary or otherwise) to the applicant and any relevant third party if the stay is to be refused.

PRINCIPLES RELEVANT TO THE SECTION 206G APPLICATION 19 In relation to the application for leave to manage corporations, the main applicable principles were summarised by Gordon J in Duffy; Re Westgate Ports Pty Ltd (2010) 79 ACSR 267; [2010] FCA 608 at [19] (save with the rider that a disqualification order does have a punitive aspect): (1) the applicant bears the onus of establishing that the court should make an exception to the legislative policy underlying the prohibition; (2) the legislative policy is one of protecting the public, not one of punishing the offender; (3) another objective is to deter others from engaging in conduct of the particular kind in question; (4) the prohibition itself contemplates that there will be hardship to the offender. Therefore, hardship to the offender alone is not a persuasive ground for the granting of leave; (5) the court in exercising its discretion will have regard to the following factors: (i) the nature of the offence; (ii) the applicant's general character, including conduct prior to and in the period since the offence; (iii) any risks to shareholders, creditors, employees or to the public should the applicant assume the management position proposed; (iv) any acknowledgement of wrongdoing and cooperation by the applicant; (v) whether the applicant's general character is such that he has never before offended, whether he is a valuable and contributing member of the community and whether re-offending is unlikely; (vi) the structure of the companies …; (vii) the degree of control which the applicant would be able to exercise and the level of supervision; and (viii) whether the applicant has before the court a specific proposal to take part in the management of a specified corporation or corporations, and whether what is proposed accords with proper commercial standards. (citations omitted)

CONSIDERATION 20 I now turn to the facts and circumstances of Dr Wooldridge's stay application. 21 On the topic of the prospects of success of the appeal, I make this observation. Whilst ASIC in its written submissions disputed the arguments to be presented by Dr Wooldridge on appeal, its Counsel (quite properly in my view) did not press the point that Dr Wooldridge had no prospects of success, at least on the low level of arguability required. This is also not a case where Dr Wooldridge (on this application for a stay) is in a position to demonstrate that the prospects of success of the appeal is so strong or overwhelming that justice requires a stay to be granted on that basis alone. 22 The real issue concerned whether the facts warranted the exercise of the Court's discretion to grant a stay, putting aside the assessment of the prospects of success. 23 Dr Wooldridge relied upon a number of principal arguments: (a) First, that the disqualification period of two years and three months would be substantially consumed by the appeal process. Thus, even if Dr Wooldridge were to succeed on appeal, he will have served a significant proportion of the disqualification period and will have been deprived of a significant part of the benefit of that successful appeal, so that to a very substantial degree the appeal will be rendered nugatory. (b) Secondly, if a stay was not granted, Dr Wooldridge would likely be unable to rejoin, in the foreseeable future or at all, two boards (in particular) on which he sits, namely the Vision Eye Institute Limited board and the CRC for Mental Health Limited ('CRC') board. Both of those companies had a firm desire for Dr Wooldridge to remain on their boards regardless of the outcome of the appeal and have recognised his "invaluable" and "unique" skills. In relation to CRC, the evidence was the strongest in favour of a stay. Mr Cooke (the Chief Executive Officer of CRC) deposed to the "critical" role Dr Wooldridge would play in the Federal Government's mid-term review of CRC and the consequences if that review was not successful: CRC is facing its mid term review by the Federal Department of Industry in June of next year. The purpose of the review is for the Department to assess the performance of the CRC in the first three and half years of its anticipated seven year life. CRC's ongoing cash funding from the Federal Government of in the order of $11.5 million is contingent upon the review process being successful. It is of particular concern to me that the mid term review process will take place in an environment in which Federal Government expenditure is likely to be under even more scrutiny and pressure than is usual, given the current pressure on the Federal budget. It is my view that Michael's participation in the review process in June next year will be critical to CRC achieving the optimum outcome consequent upon the review. I hold this view by reason of my confidence in Michael, his unique corporate memory of CRC, have been intimately involved in its conception for a period of approximately six years before it commenced in 2011, his vast experience in the health area both within and outside Government and because he has previously achieved successful outcomes on similar reviews undertaken, for example of the Co-operative Research Centre for Oral Health. As chair of CRC it would be Michael's role to lead the review process on behalf of CRC, liaising directly with the chair of the Federal Government Review Committee and CRC's collaborator organisations. Our planning for the review has commenced, although it is at an embryonic stage. In the worst case scenario, if the review is not successful, CRC may be forced to cease operating, as without the Federal Government funding it could not do so. It was submitted that the above detriment, for which there will be no recompense, would likely be suffered by CRC if the disqualification order was not stayed. (c) Thirdly, Murphy J in the penalty reasons given in Australian Securities and Investments Commission v Australian Property Custodian Holdings Ltd [2014] FCA 1308 held that Dr Wooldridge was "a man of honesty and integrity" (at [364] and [375]) and that "there is no real need to protect the public against the risk of Dr Wooldridge committing similar breaches in the future, or to impose a disqualification so as to deter him from future breaches": at [316]. Further, as Murphy J observed at [413], Dr Wooldridge and his family have suffered significantly through intense adverse media reports and the disqualification will cause loss of $328,000. In addition to the losses identified by Murphy J, continued disqualification pending the appeal would have the effect of causing further hardship by reducing Dr Wooldridge's consultancy income from $120,000 to $70,000 which would never be recovered. 24 As is apparent from the orders I made, I considered that Dr Wooldridge should be able to remain a director of CRC until the hearing and determination of the appeal or further order. I made that decision on the basis of the particular need for his knowledge and expertise, and the significance of his position with CRC, having regard to a particular task needed to be undertaken in June 2015 as referred to in the evidence of Mr Cooke. 25 In relation to the other companies of which Dr Wooldridge was a director, I was not persuaded (on the evidence) that his own interests required protection by operation of a stay, or that the other companies would be sufficiently adversely affected by the disqualification order continuing until the hearing and determination of the appeal. In relation to those other companies, Dr Wooldridge could act as a consultant, obtain appropriate fees, and assist each company in its needs in the interim pending the hearing and determination of the appeal. Further, the appeal is to be heard in May 2015, which is relatively soon. 26 Whilst I accepted that Murphy J made favourable observations about Dr Wooldridge's character, the breaches found were "serious", and the general deterrence aspect of the disqualification orders may be undermined by the grant of a stay other than in the limited fashion in fact granted. 27 Applying the principles outlined above, the onus that was placed upon Dr Wooldridge in seeking a stay in the context of a proceeding brought by a regulator was not discharged other than in respect of CRC. 28 Finally, I make some observations concerning the s 206G application. The s 206G application, as I have said, was brought only because it was initially suggested by ASIC that it was the appropriate application to make. ASIC did so initially suggest because of the following statement of Santow J in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 74; [2002] NSWSC 510 at [20]: There is one final matter which bears particularly upon disqualification. It should not be overlooked that if at some future date Mr Adler chooses to make application pursuant to s 206G for leave to manage one or other of the corporations with which he is presently associated, he is in a position to do so. Thus if a particular transaction required such leave, the plaintiff has fairly indicated that such an application might be made by consent, if warranted. Section 206G of the Corporations Act provides a more appropriate mechanism for the kind of variations that might fairly arise during the pendency of any appeal, as UK authority on its equivalent bears out: see in particular Secretary of State for Trade and Industry v Bannister [1996] 1 WLR 118 at 124 per Morritt LJ and at 126 per Glidewell LJ and subsequently Re Blackspur Group Plc [1997] 1 WLR 710 in relation to the lesser efficacy of undertakings, compared to the equivalent statutory provisions with their statutory sanctions. 29 As can be observed in that passage, Santow J referred to the UK decision of Secretary of State for Trade and Industry v Bannister [1996] 1 WLR 118 ('Bannister') as support for the statement that s 206G was the more appropriate mechanism for the kind of variations that might fairly arise during the pendency of an appeal. In Mr Adler's renewed application to the Court of Appeal, Adler v Australian Securities and Investments Commission (2002) 43 ACSR 35; [2002] NSWCA 303 at [24], Giles JA also referred to Bannister and made observations to the same effect. His Honour repeated those observations in Whitlam v Australian Securities and Investments Commission (2002) 43 ACSR 73; [2002] NSWCA 312 at [43]. 30 With respect, I consider such an approach to be in error in the context of the applications before me. Central to the reasoning in Bannister was that the terms of the relevant UK legislation at the time precluded the courts from altering the commencement date of the disqualification order if they granted a stay of that order. The result was that the period of the stay would necessarily count in satisfaction of part of the term of disqualification. 31 There is no such statutory impediment in s 206G of the Act, and the powers of the Full Court under s 28 of the Federal Court of Australia Act 1976 (Cth) enable the Full Court, on dismissing the appeal, to vary any disqualification order which includes making an appropriate adjustment to the commencement date of the period of disqualification to take account of any stay. 32 I make a second observation. In considering the relationship between a stay application and an application under s 206G of the Act, Barrett J stated in Australian Securities and Investments Commission v Somerville [2009] NSWSC 1149 at [18], that "the considerations relevant to stay are relevant in the same way and for the same reasons to the application for leave under s 206G" of the Act. 33 However, whilst the considerations that are relevant to both an application for a stay and an application for leave under s 206G of the Act may overlap to some extent, the contexts of each application are different. Unlike an application for leave under s 206G of the Act, the application for a stay only arises because an appeal has been lodged (or is undertaken to be lodged). Further, a stay takes into account the prospects of success of any appeal, which is not a consideration relevant to an application under s 206G. The effects of a stay order and any leave granted under s 206G are also different. Leave under s 206G of the Act assumes that the disqualification order is in force, and continues to apply subject to the terms of the leave obtained; on the other hand, a stay impacts on the disqualification order itself and prevents it from having any operation under the Act. 34 I considered that the appropriate course to adopt was to make the orders in the appeal proceeding. This is not to say that an appropriate order could not be made under s 206G of the Act (including imposing exceptions and conditions on any leave under s 206G(3)). However, by making an order in the appeal proceeding itself, the Full Court, upon hearing of the appeal, can readily vary the disqualification order depending on the outcome of the appeal and the circumstances existing at the time the appeal is determined. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.