Rich & Anor v ASIC [2004] HCATrans 121 (22 April 2004)

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Rich & Anor v ASIC [2004] HCATrans 121 (22 April 2004)

Last Updated: 2 September 2004

[2004] HCATrans 121

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S131 of 2004

B e t w e e n -

JOHN DAVID RICH AND MARK ALAN SILBERMANN

Appellants

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

GLEESON CJ
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 22 APRIL 2004, AT 10.15 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friends, MR D.L. WILLIAMS, SC and MR S.A. GOODMAN, for the appellants. (instructed by Joanne Kelly Solicitor)

MR R.B.S. MACFARLAN, QC: If the Court pleases, I appear with my learned friends, MR M.A. WIGNEY and MR N.J. BEAUMONT, for the respondent. (instructed by Australian Securities & Investments Commission)

GLEESON CJ: Mr Walker and Mr Macfarlan, we will sit from 10.15 to 1 and 2 to 4, and we assume that you will be able to reach an agreement on a division of time if that becomes necessary.

MR WALKER: I doubt that it will become necessary, but thank you, your Honour. Your Honours, section 1317E commences in paragraph (1)(a) by the imposition of a duty on a court such as the Supreme Court in these proceedings.

GUMMOW J: I am looking at a print current as at 1 January 2004; is that the right thing to do?

MR WALKER: It is a convenient thing to do. It will not make a difference for any of our argument. There have been changes made which are not material to any part of our argument since then.

GUMMOW J: But what is the relevant date for this case?

MR WALKER: January to May 2001, your Honour.

HAYNE J: Which is before this Act came into operation.

MR WALKER: It is before the Act in the present form came into operation, yes, your Honour. There have been changes, as we have noted in our submissions.

HAYNE J: Before the Corporations Act 2001 came into operation, is it not?

MR WALKER: Yes, your Honour.

GUMMOW J: But why is that the relevant date? It is just an application for a procedural step. When was the application made to Justice Austin?

MR WALKER: There is a contravention - I will get the date for the commencement of proceedings - the contravention referred to in section 1317E(1)(a) was alleged to have occurred at that time.

GUMMOW J: I know that, but this is an application in the course of preparation for a trial, for a procedural step.

MR WALKER: Yes.

GUMMOW J: Does one not look at the law at the date of the procedural step?

MR WALKER: Yes, the law governing what can or may be done by the court and what must be done by a party is procedural and is governed by the current law at the time. It was 12 December 2001 that the primary proceedings were commenced and it was 10 February 2003 that the application was made for the provision of discovery and witness statements.

Now, in this case though, there does not appear any argument from the respondent to the effect that a provision of any enactment, analogously with, for example, section 155 of the Trade Practices Act in famous cases, had the effect, properly understood, of abrogating a relevant privilege or of modifying its application. That is not an issue in this case, nor is it an issue in this case whether there is properly understood anything in the nature of a privilege against the imposition of a penalty, or in relation to the imposition of a penalty. In particular, there is no issue in this case as to whether it applies in the present proceedings.

KIRBY J: Just let me get that clear. The first point you make about non-abrogation, is that that there is no express abrogation?

MR WALKER: Yes, not simply no express abrogation, but no argument about abrogation at all.

KIRBY J: There must be an argument about abrogation, about the effect of the provision?

MR WALKER: No, there is not, your Honour.

KIRBY J: To remove the privilege?

MR WALKER: No. There is rather - - -

McHUGH J: The argument is simply that there is no penalty?

MR WALKER: That is right, a stout denial that the privilege applies, bearing in mind the consequences of the orders sought under the statutory provisions in question, which is why I have gone straight to the first of those, against my clients. It is an argument which, with great respect, assumes that there is such a thing as the penalty, assumes it applies in judicial proceedings. It is not concerned to argue for any abrogation, but says “But the relief we seek, we – ASIC – is not relief in the nature of a penalty whereby no privilege”.

HAYNE J: In part it is affected by 1317L, is it not?

MR WALKER: Yes.

HAYNE J: That is a part of where to begin.

MR WALKER: Yes. Picking precisely the one, and I can only start with one to begin with, is a little arbitrary. The reasons I have chosen to start with 1317E is because of the duty it imposes on the court. There is no discretion. That is the first point we wish to make. Once the court has been satisfied, that is, has made a finding, mixed fact and law put up by the issues on the pleadings, if that finding is of contravention relevantly of the provisions of section 180 to do with officers’ duties – and that is one of the ones pleaded, as your Honours have seen – then the Court must make what is called a declaration of contravention, that is a special kind of declaration.

It has a form, for example, which is also mandatory and stipulated in section 1317E(2). We have put, and maintain as an important part of our argument, that this is a declaration which is, of course, public which is, as subsection (2) points out, an informative declaration which is in the nature of a branding, a public statement of a contravention, in this case, of the standards set down by a positive enactment for the discharge of officers’ duties.

KIRBY J: I did see earlier your argument about the mandatory nature of it, but what is the relevance of the fact that it is mandatory?

MR WALKER: The relevance is that that begins a scheme whereby - - -

KIRBY J: I ask that because in most criminal penalties it is not mandatory. It is simply a matter of applying the standard of proof and so on and coming to a conclusion.

MR WALKER: May I offer a different analogy with crime and under this general caveat. The analogies are - none of them is perfect and all of them may mislead if pushed too far. Under that general caveat, the corresponding aspect of criminal process to the mandatory declaration of contravention in these proceedings is either the verdict and/or the consequential conviction or both, or the conviction, rather than then the visiting of sentences of imprisonment or fine or whatever.

KIRBY J: It is like mandatory life imprisonment.

MR WALKER: No, the mandatory element here is that which is required at a criminal trial upon the jury verdict; namely, the entry of a conviction in a case of that verdict being guilty, of an acquittal in the case of it being not guilty. For that matter, mandatory, in the sense that unless it is discharged for failure to disagree or other ground, the jury must deliver a verdict. So that the mandatory element in 1317E, upon which we attach as part of our argument, is that it resembles what must happen at a criminal trial in terms of a finding of contravention in crime of the criminal provision or common law - in this proceeding, of the relevant statutory provision.

GLEESON CJ: Mr Walker, is there any excusing provision?

MR WALKER: Yes, there is. It does not excuse from – can I take that on notice, your Honour.

GLEESON CJ: You know the sort of thing I have in mind - - -

MR WALKER: Yes, I do.

GLEESON CJ: Ought reasonably be excused - - -

MR WALKER: It is very much like a Trustee Act provision and uses some of the same language. It is 1318.

GUMMOW J: Trustee-type section.

MR WALKER: Section 1317S is the appropriate one, though:

eligible proceedings:

(a) means proceedings for a contravention of a civil penalty provision –

an expression to which I am about to come, and then the criteria for the application of this relief include in paragraph 1317S(2)(b), the appearing to the court that:

the person has, or may have, contravened a civil penalty provision but that:
(i) the person has acted honestly;

and then, in familiar phrasing –

(ii) having regard to all the circumstances of the case –

et cetera.

GUMMOW J: Yes, not honestly and reasonably, though.

MR WALKER: No, just honestly and it may be that under subparagraph (2) it may be that that will bring in what reasonably may have brought in as an analogue of a criminal defence.

GLEESON CJ: Anyway, there it is: tabula in naufragio.

MR WALKER: Yes. It may be stronger than a tabula for some people.

GLEESON CJ: Always worth looking at, anyway.

MR WALKER: Yes. Your Honours, the next thing to observe about 1317E is that it contains a list – and this is a list that has altered immaterially for present purposes since the conduct alleged in this case – of provisions of the Act. Those are provisions which then have in parentheses elliptical labels for their subject matter. In our submission, it can be seen, and, in any event, the terms of each of these provisions reveal, on a simple reading, that each of them has to do with laying down a standard of conduct by those who, one way or the other, may affect the nature of the public or interested persons’ involvement in a corporation or for the public benefit - that is, in order to protect the public by requiring certain standards to be met and sanctioning contraventions of that requirement.

They are called – and your Honours have seen that in writing we attach significance to this – a telling label. They are called “civil penalty provisions”. In our submission, one ought not to start the task of construing the statute for the purposes of answering the question, “Is this a penalty under the general law doctrine?”, by - - -

GUMMOW J: The general law doctrine is a penalty or anything in the nature of a penalty.

MR WALKER: Yes. For the purposes of that general law doctrine, one would not start construing this statute by regarding the word “penalty” in the collocation “civil penalty provisions” as having been used inadvisedly or counterproductively or in a way which would defeat the purpose of the statute. Perhaps I should say it is the triumph of hope over experience, that argument, but, in our submission, that would be a - - -

HAYNE J: It is the first time such a submission has been made about the corporations legislation, Mr Walker.

MR WALKER: It would be a poor start to the interpretation exercise to start with a proposition that one of the important pieces of wording in question – and the label is always important – may be disregarded if it simply said, for example, “wombat”. That is, the semantic content of the word is meaningless; it is just a convenient label.

GLEESON CJ: Well, you can take them at their own estimation.

MR WALKER: Yes.

GUMMOW J: In the Northern Collieries Case [1910] HCA 61; (1910) 11 CLR 738, which, in a way, tells you all you need to know, Justice Isaacs refers at 744 to what was said in Hare on Discovery:

penalty or forfeiture, or disability in the nature of a penalty –

The word “disability” is in there, too.

MR WALKER: Yes, it is, and it, for example, is also clearly evoked by what was, for Sir Isaac, the then recent decision of In re a Debtor to which he makes specific reference at page 747 of the report, which, as your Honours will recall, was the bankruptcy case. A disability in the nature of a penalty raises the question of, “Can there be disabilities not in the nature of a penalty?”, to which the prompt answer must be, “Of course”. If one extends that to the facts or the nature of this present case, we make the same response to the question, “Are all disqualifications in the nature of a penalty?”, to which the answer is, “Of course not”.

McHUGH J: Have you looked at the ecclesiastical censure cases, because this doctrine applied if you were likely to be subject to censure - - -

MR WALKER: Your Honour, I have certainly not looked at all of them, but I have looked at, for historical purposes, what I will call an intertwined development of the doctrine, almost simultaneously ecclesiastical censure, forfeiture of estates and self-incrimination in the 16^th and 17^th century, so, yes. May I say this about the ecclesiastical censure cases? It is to be recalled that the jurisdiction, varying as it was over time and place of the ecclesiastical courts, certainly included, as the word “censure” makes clear, the adjudication of guilt of conduct which was said, by definition, to be against God’s law. In many cases it was also against civil law, and in all cases was conventionally – and I do not mean by that hollowly, I mean by consensus – regarded as productive of shame for those - - -

McHUGH J: That is why I asked you because - - -

MR WALKER: Yes. Now, my point in saying that is as follows, that it would appear that the penalty against self-incrimination – and I will not be referring to it much – and the penalty against attracting a penalty to oneself, a privilege against that, and forfeiture of estate and ecclesiastical censure all at some stages in their intertwined history included comments to the effect that the self-defamation, or as it is usually put, infamation of the – I will call them defendants - they were not always defendants, of course, but for convenience I will call them defendants – was part of the rationale and that the law of nature which is referred to in the historical progenitors of each of those privileges included the what nowadays might be called the psychological commonplace that there is something peculiarly striking, maybe in a salutary sense, maybe in an awkward sense, in requiring somebody to say shameful things about themselves requiring, that is, by force, force which may have included, as your Honours appreciate, imprisonment just as failure to answer questions nowadays can include imprisonment.

HAYNE J: That seems to fasten upon two elements. First, some notion of wrongdoing coupled with disadvantageous consequence?

MR WALKER: Yes.

HAYNE J: Do you say that those represent, for relevant purposes, the relevant features?

MR WALKER: Your Honour, we say that to adopt that phrasing would be nowadays too general, but that the qualities contained in that phrasing are somewhat more specifically stated – as I am about to attempt – of the essence of an understanding nowadays of the privilege.

HAYNE J: It would be necessary for a start to exclude the disadvantageous consequence of having to make compensation to another, that is, an award of damages on account of wrongdoing would seem, perhaps, to lie beyond the field.

MR WALKER: Yes, disadvantage is too general. It is disadvantage to be involved in any litigation as the party charged. It is disadvantage as your Honour, with respect, correctly points out to be subject to either common law or equitable remedies in the nature of restitution for what you have caused somebody else to suffer. That is why we could not accept a formulation as general as your Honour has put it. We would suggest however the following: first, negatively that would no longer suffice as a modern rationale that self-infamation suffices to attract the penalty privilege. Now, that may be because of a move away, particularly in civil litigation, to gingerly introduce a difference between civil and criminal, pace Labrador Liquor. It may be that in civil proceedings there is a discernable trend post-Judicature Act to requiring things to be said and on oath which may well redound to the discredit socially of the person who is forced to say them and we do not attach ourselves to the history that can be found very clearly, namely that self-infamation was a mark of the privilege being attracted.

However, the shame is an aspect of the rationale which still exists, in our submission, for the following reasons. First it will apply - this may not describe the outer limits, but it certainly describes them sufficiently to encompass the present case - where there is involved a contravention of law, particularly enacted law, laying down standards for behaviour, which standards can be seen on their face to be the expression socially, through Parliament, of standards of conduct required of people in particular positions so as to protect against harm for others.

GLEESON CJ: Mr Walker, could I just ask a question about the procedural manner in which this question arises in the present case?

MR WALKER: Yes, your Honour.

GLEESON CJ: Your clients have not made an objection to the production of discovered documents on the basis of the privilege, have they? They have sought, to use the expression that was used in Refrigerated Express Lines, to make an application in limine.

MR WALKER: Yes.

GLEESON CJ: Justice Austin held, as appears from page 10, that the principles on which you rely do not entitle you to oppose the making of an order for discovery but they would entitle you to object to production of particular documents on the ground that you would be exposed to a penalty.

MR WALKER: Yes. That seems, if one looks at Refrigerated, to turn on a characterisation of the proceedings in which the order of discovery is sought. In our submission, the proceedings in this case are so plainly on their face because of the implication of section 206C, to which I am about to come, on the other side of the line from that which Justice Austin - - -

HAYNE J: But it seems at odds with Associated Collieries, does it not?

MR WALKER: Yes.

HAYNE J: In particular, at 747 in 11 CLR, where Justice Isaacs, referring to a number of English authorities, pointed to the rationale for prohibiting discovery rather than requiring listing coupled with objection to production.

GUMMOW J: The point, shortly, is that under the old procedure there would be a bill for discovery and there would be a demurrer to it.

MR WALKER: And there would be a plea to the bill.

GUMMOW J: A demurrer.

MR WALKER: Yes, or, as in some of the other old cases, a plea of the statute. If you take Lord Hardwicke’s famous cases, a plea of the statute which penalised Catholics.

GLEESON CJ: Something may have turned upon the Rules of Court in Refrigerated Express Lines. Your opponents actually needed an order for discovery of documents in this case.

MR WALKER: Yes. They also needed an order or a direction in relation to the prior service of witness statements from anybody whom you were going to call, including the party.

GLEESON CJ: I do not now remember whether the relevant Rules of Court in the Federal Court that affected Refrigerated Express Lines provided that there, as it were, was to be discovery in accordance with the Rules unless a party got some kind of relief from discovery.

MR WALKER: I am sorry, your Honour, I will have to take that on notice. There was a time when, in classic Judicature Act procedures, such as in the Supreme Court, by simple service of a notice one could compel general discovery, but - - -

GUMMOW J: Never in the Federal Court, I do not think.

MR WALKER: No. I was about to say, I think the Federal - - -

GUMMOW J: In any directions hearing.

MR WALKER: Of course, it is notorious that there are now many more considerable barriers in the way of anything in the nature of so-called general discovery than used to obtain.

GLEESON CJ: Do you need or seek to challenge the decision of Justice Deane in Refrigerated Express Lines?

MR WALKER: No. If one looks in Refrigerated Express Lines 42 FLR 204 at 207 – and picking up the observation, with respect, by Justice Hayne – there, Mr Justice Deane refers to Associated Northern Collieries and, perhaps significantly, also to Naismith v McGovern, and goes on:

Even where, as in the present case, the proceedings are not for recovery of a penalty but to prevent and redress civil injury –

That is why our explanation, which does not involve inviting this Court to hold Refrigerated wrong, is that the form of the proceedings and the relation they bear to the feared penalty seemed to be the criterion by which in limine objection or item by item objection to production was indicated.

GUMMOW J: Yes, it is 207.5, is it not?

The present proceedings do not involve any allegation of criminal conduct - - -

MR WALKER: Yes:

Nor are they proceedings for the recovery of a pecuniary penalty.

GUMMOW J: Yes. It was inter partes litigation.

GLEESON CJ: Just before you pass from that case, do you rely on what appears on the bottom of 207 and the top of 208?

MR WALKER: Yes, that is a general statement, of course, which includes both in limine objection plus item by item objection. Your Honours, I was in the course of answering Justice Hayne’s request concerning – if I might call it this – the rationale or the principle. I described “contravention” and “disadvantage” as being too general, because it may be that not all contraventions will, as to the consequences visited by the law for contravention, amount to a penalty. So I have restricted contraventions to something which will apply in this case, namely, contravention of a positive enactment which lays down a standard which, for the protection of society, certain people have to observe.

The importance of that is that it relates to what might be called the shame or infamy or obloquy factor, which, in our submission, is absolutely current in the requirements for the mandatory declaration of contravention in 1317E – the “branding” provision – because contraventions of standards like that are contraventions, as it were, that somebody has let others down, has done the wrong thing in a moral, and not just a strictly technical, legal, sense.

The second element is that there is a consequence provided for that contravention which can be seen to be in the nature of a penalty. “Penalty” is, of course, a word which has a fairly broad penumbra of meaning, but, in our submission, it is difficult for me to avoid having to confront some element of sanction, in the sense of punitive sanction. That is why what I will call ordinary general law compensatory consequences are difficult to see, without more, as disadvantageous consequences which are penal in nature.

That is why we would reject the general proposition that disadvantageous consequences suffice to attract a privilege. They do not. But where – to adopt some of the language used against us by our learned friends in writing – the purpose of the statute or enactment in question can be seen to include the marking of falling short and the deterrent effect of publicly visiting upon someone a consequence which is disadvantageous to the individual, as well as being, in the individual case and in general deterrent purposes, protective of the public, then, in our submission, the analogy – rough, but useful – with criminal law emerges, so as to render the matter penal in nature. No one seems to have any difficulty with what are called pecuniary penalties, because of their obvious analogy with fines.

HAYNE J: Now, as to that, declarations of contravention under 1317E or the making of such a declaration, as distinct from application for it – the making of such a declaration is a gateway to a number of other provisions in Part 9.4B.

MR WALKER: It is. Now again, at the risk of pushing it too far, I would invite your Honours to consider the possible analogy there with criminal procedure, where - - -

HAYNE J: Let us leave aside analogies for a moment. Let us just identify what gates are provided. One of them was 1317G, a pecuniary penalty order.

MR WALKER: Yes.

HAYNE J: Does it follow that the making of a declaration of contravention is an application invoking the doctrine relating to privilege against penalty because it exposes the respondent or defendant to the possibility of subsequent action under 1317G?

MR WALKER: Yes, but there is another reason as well, which works in tandem with that reason. It is also a public branding - - -

HAYNE J: I understand that, but why then - no doubt you want to have the second string to the bow about disqualification orders - - -

MR WALKER: Yes, I do.

HAYNE J: But it is a second string.

MR WALKER: It is.

HAYNE J: Yes.

MR WALKER: There is a third string, if one can have them in archery. The third string is the non-civil penalty provision disqualification, 206E, which also, as your Honours have seen, pivots upon contravention, in that case relevantly subparagraph 206E(1)(a)(ii) - - -

GUMMOW J: Just a minute, 206 - - -

MR WALKER: Section 206E(1)(a)(ii), which is at least twice contravened. Now I stress that is not a provision. My third string is not a provision where I can call in aid the legislator’s label. It is not included in that label, but - - -

HAYNE J: Is that a provision which, as the pleadings now stand, sought to be engaged?

MR WALKER: Yes. It has not been to the forefront of the penalty argument obviously because there has been the civil penalty orders, as defined in section 9, to which I am about to come, also pleaded.

GLEESON CJ: But the privilege against exposure to a penalty is not limited to exposure to a penalty in these proceedings, is it?

MR WALKER: No, quite. That is one of the very points of Refrigerated.

GLEESON CJ: Yes.

MR WALKER: It is when you are in that proceeding, that the in limine
objection applies. We are in the proceeding, we say, because we say that what we are faced with is a penalty - - -

GLEESON CJ: But it is common ground, is it not, that section 1317G provides for what is, in very sense, a penalty?

MR WALKER: Yes, that has never been doubted - - -

GLEESON CJ: And declaration of contravention in the present proceedings, if made, would expose your client, would it not, to a pecuniary penalty order in some other proceedings under section 1317G?

MR WALKER: Yes.

HEYDON J: What about Anshun? ASIC could not start a further set of proceedings, could they, on the same facts and seek pecuniary penalty orders in those proceedings which they did not seek in these.

HAYNE J: Why not when the 1317G is premised upon not application for, but making of, declaration?

MR WALKER: First of all, can I answer Justice Heydon as follows. If that were clear, many people would feel more comfortable than they presently do. It is not clear. There is no authority to that effect, though with great respect, Henderson v Henderson may well give rise to questions of the kind. The difficulty is this - and it is an enormous difficulty if you think about the nature of the issues in Henderson or the nature of the issues in Anshun - the difficulty is that these are public, regulatory provisions, and in our submission, the considerations of expediency and the civil administration of justice, and the avoidance of being twice vexed, for example, that may inform civil principles, Henderson and Anshun, may be quite trenchantly excluded in the case of public regulatory provisions such as 1317G.

HEYDON J: But the more you move away from civil proceedings, the more vexatious it seems that public authorities should vex people twice.

MR WALKER: The more oppressive, but - - -

HEYDON J: And therefore the less likely it is that the court will - - -

MR WALKER: Your Honour, there are two ways in which that might follow. One would be statutory interpretation of the provisions by which I will call the prosecutor claims to be able to commence the subsequent proceeding. That would only ever be a statutory interpretation issue. The courts leaning against double jeopardy, for example, would yield if the provision were clear enough. The second way would be by an abuse of process stay, the nature of which would be extremely problematical if your only point was that “They could have sought a fine from me in the same proceedings as they got my disqualification”.

HAYNE J: But in the same proceeding in which they obtained the condition precedent for the application of a pecuniary penalty order?

MR WALKER: Yes. Now, can I come back then to the terms of section 1317G in order to complete my answer to the Chief Justice. It looms, not because a declaration will lead to a consequence under 1317G being the pecuniary penalty, but because of the risk that that will follow because, as one sees, there is reference in 1317G(1)(a) to something which has been accomplished and that is the expression “a declaration of contravention by the person has been made”. Now, that will be made in proceedings which have been completed at the point where the court obtains the power under 1317G. On the face of it, that language does not exclude the possibility of those being two separate proceedings subject, of course, to the arguments that Justice Heydon has asked me to consider.

HEYDON J: But you can certainly have two separate proceedings if the plaintiff is different. If a civil plaintiff got a declaration of contravention, no doubt the Commonwealth or ASIC could start a second set of proceedings. I simply question, and I think we understand each other, whether the same plaintiff - - -

MR WALKER: Yes.

HAYNE J: Well, only ASIC can apply, can it not?

MR WALKER: Yes.

HAYNE J: Under 1317J(1) plus J(4).

MR WALKER: That is for - - -

HAYNE J: Declaration of contravention.

MR WALKER: Yes, otherwise compensation is available to others and then something called intervention, with what consequences is not entirely clear, is referred to in 1317J(3), but, yes, I think the “only” does appear from a proper reading of 1317J, yes your Honour.

HEYDON J: Subsection (4).

HAYNE J: It is (4) - - -

MR WALKER: Yes, unless permitted by the section. Now, there are two legal persons referred to in 1317G, ASIC and the Commonwealth. It is unlikely that that is a difference that would affect the availability of the arguments that Justice Heydon has raised for consideration. Our submission simply is that the language of paragraph 1317G(1)(a) is language which is consistent with there being separate and subsequent proceedings, even by the same moving party.

The matters then referred to in 1317G(1)(b) are matters which have to be satisfied before there can be a pecuniary penalty, but they are arising from the nature of the conduct in the circumstances which will have been declared under 1317E(2). For those reasons, in our submission, the suggestion the Chief Justice asked me to consider is one which we certainly do embrace. 1317G holds out consequences, not in these proceedings, but potentially of a kind which justify respect for the privilege.

On the other hand, of course, that would then give rise to the question, the Refrigerated question, in proceedings where there was nothing in the nature of a penalty actually sought in the first proceedings. We do not have to worry about that for a number of reasons. First, we say the disqualification is certainly that. Second, we say that the declaration of contravention, the mandatory branding is that. Third, we say the compensation order is.
Now, to make good that last proposition, which does involve a labelling argument, can I take your Honours please to section 9. The labels in question – I have already touched on one, that is, the label that is found at the foot of 1317E(1). Those provisions starting with 180 are civil penalty provisions. Section 9 includes the definition of civil penalty provision, so as to lead you back to where I started, and then immediately before a definition of civil penalty order. So we are now, by the word “order”, into the remedy or relief the seeking of which will characterise the proceedings, yea or nay, as proceedings for the recovery of a penalty.

GLEESON CJ: What is the origin of that expression “civil penalty”? When did it begin to be used in legislation?

MR WALKER: I cannot answer that, your Honour.

HEYDON J: I thought it was an idea which Senator Murphy, when he was Attorney-General – he may not have been the first, by any means, to have insisted on it, but he favoured it because it assisted with the burden of proof. He established a civil standard of proof rather than a criminal – the Trade Practices Act - - -

MR WALKER: Your Honour, I cannot answer that in terms of nomenclature, but as your Honours discussed in Labrador Liquor, for example, there is a long history of remedies in the nature of a penalty being recovered in proceedings which are not criminal. Now, it may be that, by a false syllogism, proceedings not criminal were seen as appropriately labelled as civil.

GLEESON CJ: My memory may be at fault, but, so far as I can recollect, it came into vogue in the context of the Trade Practices legislation. I may be wrong about that.

MR WALKER: Certainly, that is where its usage has been most numerous.

GUMMOW J: There is some discussion by Sir Isaac Isaacs at 742 in Northern Collieries.

MR WALKER: I am not sure – I may have missed it, your Honour, but I do not think he actually uses that expression, although he uses - - -

GLEESON CJ: That was a claim for treble damages for breach of the anti-trust law.

MR WALKER: You find, for example, a reference to what I was talking about concerning forms of the action and procedures at 742, about two inches down, imposing the test. His Honour then goes on:

Very often that depends upon whether the action itself is a penal proceeding –

and that, of course, rephrases the question –

It does not rest upon the fact that it is a civil action. An action is none the less civil merely because it is penal.

Then there is a reference to Lord Mansfield making that point clear. I do not think that answers your Honour the Chief Justice’s question about when the expression “civil penalty” entered our legal usage, for which I apologise.

GLEESON CJ: I wondered whether – and this is pure speculation – the expression “civil penalty” was a legislative device that was adopted to avoid the possibility that people might rely on the privilege against self-incrimination?

MR WALKER: Yes.

GUMMOW J: I also think it was used in the Customs Act from early times to avoid section 80 of the Constitution.

MR WALKER: Yes. Curious, if so, because it may be that that could have been avoided simply by ensuring that the form of the criminal proceeding did not involve an indictment. A summary proceeding - - -

GUMMOW J: Yes, it took 30 years for that to be worked out, though.

GLEESON CJ: I wonder if it is an expression peculiar to Australia?

MR WALKER: I much regret to say, I cannot answer that. If our researchers do supply an answer to that, your Honours, may I have your leave to supply it?

GLEESON CJ: Yes.

MR WALKER: Thank you. There is something in the United States that comes to mind, your Honour, that I will bring to light. Your Honours, I was in section 9, in the legislative command to understand the expression “civil penalty order”, and one sees there that it means the “declaration of contravention”, “a pecuniary penalty order”, “a compensation order” and then from all the possibilities for disqualification, one was selected, an order under section 206C. Our prime focus is, of course, the claim under section 206C.

When one then goes to section 206C itself, one sees there that there is granted to the court a discretion in the same way as – but for some perhaps unfortunate examples – a criminal sentencing court has a discretion, because there the court may disqualify for what is called a period considered “appropriate” if certain, if you like, jurisdictional facts exist. The first is that “a declaration is made under section 1317E”, which is then, we would submit, significantly labelled by the legislators, “(civil penalty provision)”. That is a little odd because 1317E defines what are civil penalty provisions and here it is, as it were, compendiously described itself as a “civil penalty provision” or “the civil penalty provision” perhaps.

So you have the mandatory declaration of contravention being required, and then perhaps tautologously, bearing in mind that the court’s discretion is to disqualify for a period “that the Court considers appropriate”, as if it were a jurisdictional fact, it is also required that “the Court is satisfied that the disqualification is justified”. There must be a fair bit of doubling or trebling up in those expressions, but what is clear is that the disqualification is to fit the circumstances revealed by the contravention. That is, in our submission, exactly the same kind of approach to what might be called the disadvantageous consequence with deterrent value that one finds in crime.

I refer to crime from time to time in my argument because, in our submission, where these ostensibly civil provisions have outcomes or characteristics which they share with crime and which they do not share with private law remedies provided, for example, by general law, such as compensation, then, in our submission, they do appear as either penalties or as orders in the nature of penalties.

In our submission, it is the combination of the sanctioning by branding, the sanctioning by withdrawal of something which would otherwise be permitted as a matter of civil status, the withdrawal from conduct which would otherwise be permitted, and in particular, the deterrent value to people minded to fall short of the stipulated standards which combine, as we have put it in writing, to indicate that this is in the nature of a penalty.

Now, while at 206C, it is of some significance to note that the respondent’s argument calls in aid the doubling or trebling up then contained in subsection (2) to deprive this deterrent consequence, this deterrent sanction, of its nature of being a penalty. On analysis, in our submission, that cannot be so because subsection (2) says, for the purposes of this civil regime, things which, as we have pointed in our written reply, are tolerably similar to what one would expect as a matter of either common law or statute in relation to criminal sentencing.

The notion that having regard to the person’s conduct in relation to the management, business or property of any corporation removes the disqualification which is premised on and which is available only because of the contravention which has been the subject of the 1317E declaration from being penal sits most oddly with the notion that criminal antecedents, as they are called, and the subjective features both as to culpability and as to prospects of rehabilitation play in criminal sentencing. As for 206C(2)(b) it is, in our submission, astonishing to suggest that that is a tail that wags the dog of characterising the provision as penal or not.

GUMMOW J: While we are on these 206 sections, your opponent makes a point about section 206F, which is an ASIC power, not a court power.

MR WALKER: Yes. The point made is one which involves a number of propositions, at least one of which cannot be dealt with until there has been a 78B notice. It certainly does not arise in this case, but there is a matter of constitutional interpretation on the limitations of Chapter III which has been raised in written argument, notwithstanding the same written argument notes that the requirement for a 78B notice has been considered and rejected.

In our submission, if a Chapter III effect on 206F is to be argued in order to assist in an understanding of 206C or 206E, then that is something that is caught by 78B. Whether that means that 78B, as one observes not for the first time, is too wide does not matter; it is mandatory requirement.

GUMMOW J: But assuming that it is valid, what do you then say?

MR WALKER: Assuming 206F is valid?

GUMMOW J: Yes.

MR WALKER: Thank you. That brings me then to the next proposition. Ignoring constitutional questions, 206F is one of the other ways in which one can be disqualified. The first thing to note is that there is nothing in the statutory artifice of corporations or officership in corporations which prevents the Parliament from defining the continuance in office of somebody by reference to whether ASIC says you should be so or not. That is the first thing.

Second, 206F, as indeed the respondent points out, includes disqualification for reasons which may not be blameworthy and which may, in fact, reflect misfortune. One would hope, of course, if you were advising somebody with one of these show cause orders, you would hope that ASIC would disqualify only for something which extended beyond commercial misfortune to something in the nature of blameworthiness, but the provisions do not require that.

It may be that 206F, in particular, is apt to include what might be called the persons for whom once is unfortunate, twice is coincidental but three times suggests a lack of requisite acumen without there being anything blameworthy, it not being blameworthy, of course, to be stupid. For those reasons, 206F supports rather than detracts from our argument because it stands in contrast the wide availability of ground leading to that administrative disqualification, stands in contrast with the public branding approach which is required unde 206C or, indeed, the finding of contravention which is required under 206E. It is in that sense that we embrace the notion that one looks to the purpose of the legislation as part of the inquiry of characterising the consequences as penal or not.

The purpose of 206C is to provide a sanction upon a contravention which is a contravention of a civil penalty provision. The purpose of 206E is to provide a consequence upon a finding of more than one contravention, albeit not necessarily of civil penalty provisions. The purpose of 206F cannot be stated in any way that requires a statement of contravention. So, for those reasons, all that 206F demonstrates, assuming its validity, is that some disqualifications are penal and some are not, which must be right when one bears in mind that that ugly word “disqualification” might be used, for example, for being too old as well as being too young.

One would not say one is disqualified for being 15 from being a company director, but you would certainly say you are not qualified, but perhaps one becomes disqualified if the Parliament brought in an age limit. The notion that in proceedings to establish how old you were, so as to establish whether you were disqualified or not by your age from being a company director, a penalty privilege would apply is somewhat laughable, we submit, because there is no blameworthiness in surviving to a particular age. There is no standard stipulated for protection of the public falling short of which would bring disapproval, as having let people down, for example. On the other hand, of course, failure to discharge your officer’s duties diligently, competently, honestly, et cetera, stands in stark contrast. So 206F helps rather than hinders our argument.

Your Honours, that concludes what I wanted to say about the statutory structure. Your Honours will have seen in our written reply that we have drawn to attention that there are some limitations, not observed in the respondent’s written argument, concerning the use of headings. I will not elaborate on that in address. Your Honours will have seen that as to the legislative history that brings the provisions together, as we have noted in paragraph 12 of our written reply, that is a weak reed, indeed, upon which to ground an argument involving characterisation in substance of that provision.

GUMMOW J: Are you assuming that there is only one possible characterisation of this legislation?

MR WALKER: No, I am not.

GUMMOW J: The question then becomes, why does one prefer one classification as to another to provide the major premise in the syllogism that leads to the result? You have what Professor Stone called the leeway here, as you do in classification questions of conflicts of law.

MR WALKER: The first way in to answering that, your Honours, is, first of all, to recognise that the test laid down by general law, not challenged by the respondent, is expressed in terms which necessarily give rise to doubt in borderline cases. That may be true of all tests, but it is particularly true of a test which posits that the privilege applies in proceedings for or raising the risk of a penalty or something in the nature of a penalty.

The next observation is that as soon as one has an expression such as “in the nature of a penalty” – and I hope I am not construing judicial utterances as if they were enactments here – one is looking for something which is a matter of substance and that, notoriously, questions which are to be answered by reference to matters of substance rather than, for example, ex facie form will give rise to borderline doubts of a peculiar kind. For those reasons, I assented to Justice Gummow’s invitation as to whether or not other outcomes of argument were available.

However, in this case, given what Sir Isaac Isaacs called “the result to the defendant” or what might be observed to be the effect disadvantageous for the defendant and deterrent for all others for the good of society. Combining those two, one has very clearly, for the civil penalty provisions 1317E and 206C, a purpose of this legislation which is to visit something in the nature of sanction pour encourager les autres as well as to deprive someone of something which they most value.

GLEESON CJ: Well, presumably all official punishment, unless it is purely sadistic, ultimately has a protective purpose.

MR WALKER: One would argue that that is true of the organisation of society, full stop, and then the legal structures which is part of that organisation and then the criminal or penal aspects of the system of law of any society. Unless they are protective, then they are something in the nature of divine gain theory which is absurd. That is why – and I do not wish to labour the point – the notion that, correctly with respect, assigning the epithet “protective” to some or all of the purpose of these provisions does not even begin to answer the precise question in this case, “But are these statutory consequences in the nature of a penalty so as to involve the privilege?”

HAYNE J: There are two or more possible classifications of these provisions, because the classifications may be made according to different criteria of classification.

MR WALKER: And for different purposes, your Honour.

HAYNE J: And for different purposes. In determining which classification is of present relevance, it is at least important to consider the criteria that are engaged, or criterion that is engaged, for the purposes of the privilege.

MR WALKER: Yes.

HAYNE J: If the privilege is concerned with the effect on the sufferer, then to classify provisions by reference not to the effects on the sufferer, but the benefits obtained by others, must at least be acknowledged to be the application of different criteria - - -

MR WALKER: Yes.

HAYNE J: - - - for the purposes of the comparison. Now what may follow from that may be further argument.

MR WALKER: I hope in furthering my answer to Justice Gummow, may I stop to attend to the particular matter Justice Hayne has raised? Your Honours could be forgiven for reading the written submissions as if it were a battle between one side that says look to the effect on a person, and the other side says, no, look to the purpose of the statute. There is no choice to be made between those two. They are all part of the same inquiry. One way of putting it is, the purpose of these provisions is to visit a certain effect upon certain people in certain circumstances, for self-evidently, socially protective purposes.

In that regard, these provisions are, we submit, significantly similar to criminal offence creating and punishment providing provisions. There is an effect in both cases on the person, being incarceration, fining, forfeiture of property or deprivation of rights or liberties. In each case, the purpose is evident to both visit that effect on the individual and to have, by the publicity given to it, a deterrent effect.

Your Honours have seen that in our written submissions in-chief we conclude with the classic passage from Veen [No 2] and unashamedly, there is there collected language which is familiar to the point of cliché, in relation to criminal sentence, but which includes a phrase that the respondent’s argument here, for the purpose of the civil penalty characterisation, regards as a contra-indication of penalty. That is, in our submission, untenable and so, for those reasons, as it happens, the criteria of distinction between penalty and not penalty which apply here, do not involve a choice, mutually exclusive, between effect on a defendant, and purpose of either the prosecutor or the statute. Those are part of the same inquiry as to the nature of the provision.

All provisions which involve visiting consequences on persons have an effect, for the very same reason they have a purpose, using the word “purpose” to describe what one can gather from the text of the statute in its pre-existing legal and regulatory context, which includes in this case, what the Cooney Committee Report told us in the passage that we have excerpted in our written submissions in-chief concerning the intended sanctions and deterrent, and I stress the word “deterrent”, expected to flow, not unreasonably, from holding out disqualification as one of the consequences that may follow from a contravention of a civil penalty order.

GLEESON CJ: Mr Walker, is it common ground that the standard of proof that will apply in these proceedings is the civil standard?

MR WALKER: Yes, it is, subject of course to Briginshaw.

GUMMOW J: Is there not a section about Briginshaw?

MR WALKER: Yes, there is. Yes, I will have that turned up, your Honour. There is no dispute between the parties concerning standard of proof.

GLEESON CJ: Now, we are only concerned with the question of discovery.

MR WALKER: Witness statements as well. There was a controversy, which is not persisted in by the respondent in this Court, as to whether one distinguished the application of the privilege in relation to orders for witness statements - - -

GLEESON CJ: That is what I am trying to find out.

MR WALKER: Our appeal is against all orders, witness statements as well. Witness statements has been a controversy, but is not a controversy in this Court.

GLEESON CJ: Witness statements - - -

MR WALKER: That was the difference between the intermediate courts of appeal that has been referred to, and that was established on the special leave application.

GLEESON CJ: Witness statements are perhaps only one practical aspect of a wider question, that is to say, in proceedings of this nature, can the court, at the outset, say to the defendant, “What is your defence?”

MR WALKER: Yes, “Speak now or forever hold your peace”.

GLEESON CJ: Directing a defendant to file witness statements is really just a particular, although important, practical aspect of requiring a defendant to inform the court of his defence at the commencement of the proceedings. Do we have to get into that issue?

MR WALKER: No, your Honour.

KIRBY J: I thought Chief Justice Spigelman said that matter was left open in the Court of Appeal. Is that correct?

MR WALKER: The matter of?

KIRBY J: Of witness statements. He mentioned the conflict of authority - - -

MR WALKER: There was a notice of contention in the Court of Appeal which, given the way the Chief Justice decided the case, did not need to be determined, but there was a live controversy. It was argued. It did not need to be determined because of the way the majority decided the case. Justice McColl was with us on the point. ASIC did not persist in raising that controversy.

KIRBY J: Would you explain why that is – why it did not need to be answered in the light of the conclusion of the majority?

MR WALKER: Because Chief Justice Spigelman said these are not proceedings for the imposition of a penalty or any risk thereof, it was not necessary for him to consider whether, if they had been, an order for witness statements with the usual sanction – at least in theory – that you will not be able to give evidence unless you have complied with the direction was something to which the privilege would speak.

GLEESON CJ: Are there pleadings in this action?

MR WALKER: There are.

GLEESON CJ: And your defence is on?

MR WALKER: Yes.

GLEESON CJ: Well, now, that is interesting.

MR WALKER: It is interesting.

GLEESON CJ: You have an action that you say partakes of the nature of proceedings for a penalty, and yet both parties are proceeding on the basis that the defendant is required to state his defence before the hearing commences.

MR WALKER: To plead his defence, and none of the cases I have read in this area, your Honours, shows an objection to filing a pleaded Judicature Act-style defence answering - - -

HAYNE J: I am not sure that is right. I do not think it was the procedure followed in the Elliott Case, for example.

MR WALKER: No, I am talking about modern-style pleadings, your Honour.

HAYNE J: I know there is nothing in the decided cases, but I do not think it accords with practice in other similar litigation.

MR WALKER: May I take that on notice, your Honour? I am not sure whether that has ever been – certainly, there is no reported case of which I am aware in which that was the point at issue.

HAYNE J: I understand that.

GLEESON CJ: Your defence is not simply a defence of not guilty? I have not checked the pleadings, but I presume you have admitted some paragraphs in the statement of claim, and denied some paragraphs in the statement of claim, and so forth?

MR WALKER: Your Honour is right.

GLEESON CJ: That is a very unusual course in a criminal type of proceeding.

MR WALKER: Not guilty pleas are not permitted in civil proceedings in the New South Wales Supreme Court.

HAYNE J: Where is the defence?

GUMMOW J: There is a statement of claim that goes for 28 pages.

GLEESON CJ: Where do we find the defence?

MR WALKER: You do not.

CALLINAN J: Mr Walker, some modern criminal proceedings now make provision for all sorts of participation by the accused.

MR WALKER: There is a fairly long-established statutory requirement in relation to alibi notices, which is a species of the genus, I suppose, criminal pleading.

GLEESON CJ: Somebody got the idea in New South Wales a few years ago of giving defence counsel of criminal trials an opportunity to open to the jury, an opportunity that was very rarely taken advantage of.

MR WALKER: Yes.

HAYNE J: They are now obliged to in Victoria and they are now obliged to state their defence at the start of the trial and that has - - -

GLEESON CJ: You cannot say, “I was rather hoping that the principal Crown witness would get sick”.

HAYNE J: No, at least not overtly.

CALLINAN J: If ever there is a misnomer it is to call what happens in New South Wales in a criminal case an opening.

GLEESON CJ: That is a very bitter comment.

HAYNE J: Can we bring this back to what orders you seek, Mr Walker. At page 17, paragraph 60 of your original written submissions you identify orders which would include consequential orders on setting aside the orders of the Court of Appeal that would set aside, as I understand it, paragraphs 1 and 2 of the orders appearing at application book 29 - at least, paragraph 1 of the order appearing in application book 31. If we are not to embark on the argument about witness statements do we go beyond paragraphs 1 of those two orders?

MR WALKER: When your Honour says paragraph 1 on page 31 - - -

HAYNE J: Yes. That is simply a consequential. The real focus is paragraph 1 on 29. Do we go beyond that, if you were to succeed?

MR WALKER: No.

HAYNE J: That is different from what is said in the writing - - -

MR WALKER: I am sorry, there are two. I think your Honour may not see the numeral 2 on page 29.

HAYNE J: I do.

MR WALKER: We certainly ask for that to be set aside. We sought special leave on that. We appealed on that to the Court of Appeal.

HEYDON J: We would have to examine the conflict then between Victorian Court of Appeal and - - -

HAYNE J: How do we do that?

MR WALKER: No, your Honour, because on the special leave application and that is why there is no - - -

HEYDON J: If you win on your main one because that - - -

MR WALKER: No. Your Honours need only observe that that question was not in controversy in this Court in this case. Your Honours certainly do not have to - - -

HEYDON J: Why would one set aside the order, then?

MR WALKER: Because no distinction has been urged by the respondent between the application of the privilege, if it exists, to discovery and to the compulsion to file affidavits. It had been urged earlier.

HAYNE J: Your understanding is that the other side accept that if paragraph 1 of that order goes, so too should paragraph 2.

MR WALKER: Yes, that the same principle applies – and it may be that they are doing it by ad hoc concession, not argued – maybe for a very good reason – bearing in mind the time involved in this case, leaving the point open - if there really is a point that they wish to take – leaving the point open in some other case. This Court, in our submission, should not be astute to fine points that a respondent does not want to argue on a notice of contention that does not exist, particularly when that fact was raised at the special leave application and had a different answer been given by senior counsel for the Commission then there would have been different written submissions from us.

That is a point where, in answer to your Honour Justice Hayne, it is orders 1 and 2 on 29, as we point out in our written submissions, that would be swept away indifferently and if that means that at some future time somebody says, “But there remains a point”, see the difference between Victoria and New South Wales of the Federal Court, for example, in relation to witness statements, is an order to give witness statements something which is met by the privilege, then presumably, this Court will not have pronounced on the matter except by way of noting that there was not an argument in this case by the respondent.

GLEESON CJ: So we only have to decide the discovery issue?

MR WALKER: No, you have to decide the privilege issue, and it would in this case, by concession, carry with it the orders for discovery and affidavits. What you do not have to decide is whether that concession in relation to affidavit directions is well founded or not. Indeed, it would be as well, with great respect, for the Court to make that explicit.

GLEESON CJ: I think an example of a longstanding practice in relation to pleadings in proceedings of a certain penal nature are customs prosecutions in this Court – customs prosecutions which used to be determined by single Justices of this Court.

MR WALKER: Yes, your Honour.

GLEESON CJ: Whether with or without a jury in the past, I cannot now say. The ones I have been involved in have involved pleadings.

GUMMOW J: The New South Wales Rules require them to be a sworn - - -

MR WALKER: Yes, I was inquiring, and ours were verified, I understand. I ask that particularly because I can say, as a matter of practice, that the requirement to verify has been in some cases dispensed with on application.

HAYNE J: Should we have the defence that was filed in the matter?

MR WALKER: I certainly do not want to keep it from you.

GUMMOW J: Why do you need an order for pleadings to go in this book? Why are they not in the book?

MR WALKER: I do not know, your Honour. May we supply that deficiency as soon as we can? There is certainly nothing in the defence, however, which goes beyond this proposition, that at the stage of pleading there was no claim that privilege prevented us from being compelled to put on a pleading. Of course, the privilege is only against compulsion. You do not lose the privilege by discrete, voluntary steps.

As to the matter concerning what I call the notice of contention, can I draw to your Honours’ attention the way in which the Commission put it in the application book at page 190, paragraph 10:

ASIC does not propose to file the Notice of Contention referred to by the Applicants –

The reference by us is found at 178, where your Honours will see that it refers to the point concerning the extension of the privilege to orders directing the filing of witness statements or affidavits. Paragraph 11 at 178. Your Honours, if I may now turn to – and continuing the answer to Justice Gummow – why, bearing in mind the absence of bright or very clear lines laid down by the general law test - - -

GUMMOW J: I should have said that 1332 is the standard of proof provision.

MR WALKER: Yes. Why, in the absence of such a sharp line, bearing in mind the expression of the general law test, the Court should prefer the outcome for which we contend, and, I would add to that, how one would go about exploring that preference. In our submission, the very concept of something having the nature of a penalty necessarily involves all the matters upon which I have already put our argument in writing and in address this morning: a standard of a particular kind, contravention, a sanction which includes, self-evidently, deterrent value, as well as disadvantage. That is, effect, purpose and result are all part of the same inquiry as to characterising the provisions. Then one moves, in our submission, as a matter of judicial technique, to decided cases. A list useful for the purposes of this argument can be found in paragraph 12 of our written submissions in-chief in this Court.

In our submission, what can be said of the precedents in that list is that in each case the loss of the legal capacity or permission to act in a particular way or in a particular office can, first of all, be seen to be the loss of something entirely artificial. It is not like the loss of physical liberty, which is a natural matter. In each case the office or status or capacity is itself the creation, in the first case of the custom of the realm, in all the other cases it is the creation of statute or of rules of court. That puts paid to the notion that there is no penalty involved in losing the capacity to do something which, for example, it was in the power of Parliament to create, to qualify, in various ways.

The next thing to note is that, apart from the notaries and attorneys point, to which I shall return specifically, the very broad range – one is tempted to say disparate nature – of the disqualifications that one sees in our paragraph 12 suggest that the nature of a penalty is no more specific than the losing of something which, when lost for contravention, amounts not only to disadvantage to the defendant in effect or result, but also to an important sanctioning and deterrent value that is protective. That is the purpose or effect of the statute. To proceed further to ask, I hope rhetorically, of those cases – making a special case for the lawyers and notaries to which I will come back – to ask rhetorically of that list, “If those consequences were penal, how much the more is losing the capacity to direct at the apex of management the fortunes of a corporation by which very large sums of money can be deployed in business?”

HAYNE J: That rather understates the effect of the disqualification, does it not? Disqualification is from management, not disqualification from being a director - - -

MR WALKER: Yes, your Honour, but what it deprives people who may once have been called “magnates” of is something which is very large. It attracts, in our submission, the description which your Honour Justice Hayne gave to cognate matters in Labrador Liquor [2003] HCA 49; (2003) 77 ALJR 1629 at 1649, paragraph [114]. In the course of refusing to regard as determinative the bifurcation of proceedings into civil or criminal as a matter of character, your Honour referred, in the second half of that paragraph, as follows:

There are proceedings with both civil and criminal characteristics: for example, proceedings for a civil penalty under companies and trade practices legislation.

And then a sentence upon which I rely in particular in this answer:

The purposes of those proceedings include purposes of deterrence, and the consequences can be large and punishing.

Now, this is not a plea for anything idiosyncratic about the position, prior or present, of the actual defendants as part of the characterising issue, but simply to note what is in general terms, that is, on the face of the statute, a clear and intended potential for the operation of such orders. In our submission, on the other side of the argument what cannot be found are cases which, when the issue was the availability of penalty privilege, described disqualification of the kind threatened of my clients in this case as not being penal or even as not being sufficiently penal, if questions of degree can come into a decision which must ultimately be yea or nay.

It may be that the lack of such authorities, leaving aside Kippe, to which I will come in a moment, is really a bias of law reporting, that the cases which were worth reporting or considered worth reporting were the cases where the machinery of the Crown was halted, as it were, or something was done by way of a plea against a bill for discovery, for example, which led to something other than the order sought being granted. Be that as it may, it is of significance that the respondent cannot assemble any comparable catalogue of precedents by which it could be said the present case fits better the respondent’s catalogue than the applicants’ catalogue. As we put in our written reply, ultimately, in our submission, the ground for preference in this Court for the outcome for which we contend is that the fit of the disqualification sought in these proceedings for contravention is better with the catalogue, for example, one finds in paragraph 12 than with anything that the respondent could put forward.

HAYNE J: That again seems to be, sub silentio, some argument that requires an “either/or” classification.

MR WALKER: It requires “either/or” only in the sense that we win or lose, only in the sense that there is or is not a privilege. I entirely accept, your Honour, that in different contexts - I am about to come to this – different criteria will apply for characterising statutory outcomes for different purposes where penalty or not penalty may have no part to play in the particular issue being litigated.

HAYNE J: But it comes to this, whether having more than one character can deny that it has each of the characters.

MR WALKER: Quite. We would submit that, for example, if the order for disqualification ought to be seen in the area of sentencing discretion as not punitive but protective, to use the very familiar dictum that has applied for a long time in relation, for example, to lawyers and striking off and discipline, that is to use misleadingly similar language, that is not punishment, for the purposes of an entirely different inquiry: how should I proportion, for example, the length of the disqualification? The same as with lawyers: how should I proportion the decision to cancel or suspend a practising certificate or to remove a name from the roll of practitioners?

That is not an inquiry which involves to the slightest degree determining, as it were, by a by-blow a characterisation penalty or not- in the nature of a penalty or not, concerning the availability of a privilege. That compendiously deals with all the case law to which my learned friends have referred, which speak as if protectiveness or social protection is a detected purpose of such legislative provisions which, ipso facto, and without anything further denies them the quality of being penal for the purpose of the privilege.

GLEESON CJ: You can have orders of a court which are of a dual nature in terms of purpose, having a punitive purpose and a protective purpose, and sometimes, as in proceedings in relation to lawyers, it is a question of the emphasis that you place on one purpose rather than another. The emphasis that is placed on the protective nature of proceedings relating to lawyers is there to remind judges who are exercising those powers that they have an obligation of protecting the public and they should not regard, for example, considerations personal to the situation of the lawyer as controlling.

MR WALKER: Yes. In our submission, that is really very similar to the same mode of thought – with quite different considerations and a different outcome – that applies in criminal sentencing. That is, there are some things that should be weighed in particular ways in relation to criminal sentencing as well. May I conclude what I wanted to say on that point as follows. I have left lawyers aside. This Court’s recent decision in A Solicitor and this Court’s decision in Daniels provide two quite different components which put into perspective the horrors that are implicitly held out in the argument against us, that if we were correct then how will courts get straight answers from defalcating solicitors or dishonest barristers?

GLEESON CJ: In your written submissions, have you made reference to the various coercive powers that are available to the respondent to obtain information relevant to proceedings of this kind?

MR WALKER: No, I have not, and for this reason. There is no dispute about them. There is no argument that a legislative scheme is crippled if privilege be available – that is, there is no argument of kind that was used to construe 155 of the Trade Practices Act, because, as I noted at the outset, this is not a case about whether the privilege would have existed but for its abrogation by a proper reading of the provisions. So the availability, the self-evident availability, of other means extrajudicially – and that is the important point – other means of obtaining information, does not really play a role in this case.

GLEESON CJ: Well, typically, people who are on the wrong end of proceedings of this kind have already been through an examination, have they not?

MR WALKER: Yes, but, your Honour, it does not play a role in this case, simply because the respondent does not say, “Deny this privilege because otherwise we are hamstrung”. They do not say that. No doubt, they do not say it because, among other things, there are lots of things they can do, and have done, in relation to obtaining information, and I stress, extrajudicially. Now, that is the point about Daniels [2002] HCA 49; (2002) 77 ALJR 40 at 47, paragraph [31], halfway down:

Today the privilege against exposure to penalties serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it. However, there seems little, if any, reason why that privilege should be so recognised outside judicial proceedings.

This is a case about judicial proceedings, and so matters in relation to compulsion outside court, that is, not for the purpose of court proceedings, do not arise.

KIRBY J: But, ultimately, the task of the Court is to look at the question which is before it, in the context of the Corporations Law, and to see how that law is intended to operate, and all of these common law peripheral statements and analogies are only helpful insofar as they cast light on how the relevant statute is to operate in the case. In Daniels, I drew attention to what Justice Dawson had said in Baker, that the professional advice privilege is, of its nature, normally going to affect a smaller category of information and data happening at a later time, when a person is seeking advice, than the privilege against self-incrimination, which, as it were, goes back much further. I just wonder whether or not there is a point of distinction between the attitude that the courts will take to insisting on a parliamentary abrogation of the one rather than the other.

MR WALKER: First of all, this is a common law – a general law case.

KIRBY J: No, I wonder about that.

MR WALKER: That is, it is a general law case about whether there is a privilege. All of the general law cases think of what Lord Hardwicke was dealing with. In each case, the plea to the bill of discovery was a plea by reference to the discriminatory statutes against Roman Catholics, and so there was the statute which created the putative penalty and the plea to the bill for discovery was, “To answer will expose me to a penalty”. That is a general law question about the effect, purpose, result of the application of the penal Acts. It is a general law question though because the existence of the privilege is a matter of general law.

GUMMOW J: Well, does it not have a statutory root in 1317L?

MR WALKER: I am not sure that it does, your Honour.

GUMMOW J:

The Court must apply the rules of evidence and procedure for civil matters –

“The Court” is defined in 58AA. It is the Supreme Court of New South Wales, et cetera, and that brings you to the general law.

MR WALKER: Yes. The general law is recognised in 1317L. That will not only be general law, of course. The “rules of evidence and procedure for civil matters” will be an amalgam such as - - -

GUMMOW J: Yes.

HAYNE J: But the relevant provision - - -

MR WALKER: Is general law.

HAYNE J: Yes.

MR WALKER: Now, that is the first part of my answer to Justice Kirby. This is a general law case which, of course, involves, as it always has, interpretation of the statute which brings in its train the putatively penal consequence. You first must ascertain, is this penal? If it is penal, then the next question, which is also statutory interpretation, is whether the general law immunity, the privilege, has been abrogated. So, yes, your Honour, there are statutory questions involved. We do not have all of them in this case because of the narrowing of the issues between the parties. We have the common law question, are the consequences of this statute penal for the purposes of the general law doctrine? Now, that involves statutory interpretation, of course, at its heart, but it is statutory - - -

KIRBY J: I will just have to think about that because the academic writing which was available to the Court in Daniels - it had been written before Daniels – opposed the line which the Court unanimously took on Daniels on the basis that taking the course of protecting the common law privilege rode a chariot through the proper operation of the statute in question there, and I am just trying to get into my mind whether or not the same can be said of the wider class of information which can be secured in this case than the relatively narrow class of information which was in issue on legal professional privilege in Daniels.

MR WALKER: Your Honour, we are not in this case arguing about privilege in relation to extrajudicial administrative obtaining of information by the Commission at all.

KIRBY J: I realise that.

MR WALKER: So there is no - - -

KIRBY J: I realise that, but that is a much narrower category of data that is being kept from the decision-maker. You see, the obedience of the Court where there is written law must be to the written law.

MR WALKER: But the written law here is not invoked by the respondent as abrogating the privilege. They do not say it abrogates the privilege. They do not say that the privilege would stultify in the way that one finds the reasoning about section 155 of the Trade Practices Act.

KIRBY J: I know you said that at the outset. It is a concession that I have difficulty with at the moment.

MR WALKER: Your Honour, it is of the first importance that we argue the case as it is presented.

GLEESON CJ: Yes, but if you have to face up to that other issue, that is another issue that can only sensibly be considered in the light of an understanding of the coercive powers that are available to the Commission.

MR WALKER: Yes, and were it an issue we would, of course, bring to attention the very large armoury of very sharp weapons in relation to the obtaining of information which is available.

GLEESON CJ: And, in particular, the legal practice that exists in relation to examination of company officers.

MR WALKER: Yes

HAYNE J: Plus what was said in Daniels that suggests at least that this privilege with which we are here concerned is not a substantive rule of law. It is something that applies only within the courtroom to the court processes.

MR WALKER: That is right. That is why I drew that passage in Daniels to attention.

GLEESON CJ: Have these appellants been examined?

MR WALKER: Yes.

GLEESON CJ: It would be a pretty rare case where people were made defendants in proceedings like this and they had not been.

MR WALKER: I cannot imagine one, your Honour. It is not a slip by my learned friends that they do not say this has been abrogated by the provisions in question. Your Honours, in the Solicitor Case [2004] HCA 1; (2004) 78 ALJR 310 at 313, paragraph [12], there are, of course, special factors which ought to apply to an understanding of former decisions, precedents in relation to officers of court and, in particular, the duty of candour that one finds referred to in paragraph [30] of those same reasons are of significance for officers of court which are perhaps sui generis.

But may we make it plain that in case there is a floodgates argument about what would happen to protective regulation were our argument correct, that what Daniels means is that the plethora of statutory provisions by which professional regulators may obtain information from professionals about what they have done with this patient or what they have done with that client are, of course, not touched by this privilege in light of the holding in Daniels. In any event, all such provisions would be construed as to their relation with any such privilege by the approach taken, for example, in Pyneboard.

Now, that brings me finally to deal with those two decisions, Pyneboard and Morris. Because of the holding in Daniels it may be said of each of those decisions that the result was right but the reasoning was otiose, that is, the result was right because the constables had to answer their superiors because their superiors were not a court, or the superiors were not asking the question in a court, and in Pyneboard that 155 was not part of judicial proceedings. However, the reasoning in Morris, in particular, is, in our submission, worthy of the analogical use we have made of it in our written submissions and which is an important part of our argument because of the way in which the majority in the Court approached the issue of characterising the disciplinary measures in question in that case as penalties or not.

Yes, it has to be said since Daniels that this is reasoning which was not necessary for the result, but it is reasoning which was carried out on the assumption that the privilege could apply to the questioning of the constables by the superior officer. That was a wrong premise. However, the law - - -

GUMMOW J: Morris was a case about whether the statute itself would oust it.

MR WALKER: Yes. Morris was decided on the basis that the enactments abrogated the privilege. You could not have a police service where constables could refuse to tell the sergeant what were they doing for the four hours they seemed to be off the air last night in the patrol car and that is what it was about. It was like Pyneboard, that is, you look at the compulsive power in question and ask yourself whether as a matter of interpretation this ousts the privilege. Are you obliged to answer, notwithstanding there is a penalty in Pyneboard? The answer was yes. In Morris the answer was yes.

HAYNE J: Do you get more out of Morris than that at least three, possibly four, members of the Court assumed that the various consequences, including dismissal from the force, were penal? Can you get more out of it than that?

MR WALKER: It is arguable that it goes further than an assumption. Could I attempt that argument very briefly. Of course, the passage in the Chief Justice’s reasons – this is [1985] HCA 9; (1985) 156 CLR 397 - the argument was framed in terms of penalties, as your Honours appreciate. The provisions in question are then paraphrased at the foot of 402 and in particular at the top of page 403, line 4 and following:

If the charge is found to be proved, the disciplinary action that may be taken increases in severity –

and I interpolate, this is the language similar to the Cooney Committee Report uses as to the so-called enforcement pyramid –

according to whether the charge was heard by –

various people –

The Police Discipline Board may (inter alia) reprimand the offending member –

and we are clearly climbing up the ladder here –

impose a penalty . . . reduce the member in rank or dismiss –

We draw, with all the imperfections, a comparison for the purposes of our argument between disqualification from managing a corporation and dismissal from the police force. It may be said of each of them that they are par excellence protective. How it could be argued, as it has been in writing against us, that dismissing policemen like this from the force is not protective is, in our submission, very peculiar indeed. It clearly is protective but that does not prevent it from being penal. Then the Chief Justice turns – just above halfway down 403 – to the familiar phrasing of the inquiry:

“any kind of punishment” – “anything in the nature of a penalty” –

and then, at the foot of that page, speaks in terms of:

the penalties provided by s 88 –

Those were the ones paraphrased at the top of page 403. Then an assumption is referred to, which I think, with respect, is not an assumption about the penal quality of these disciplinary outcomes, but rather an assumption about a privilege. For those reasons, in our submission, when one turns to the combination of Chief Justice Gibbs and Justices Wilson and Dawson’s reasons in particular it does go further than an assumption.

This was reasoning now understood to be otiose but done on orthodox jurisprudential bases in relation to the nature of a penalty which said of dismissal from the force that it was penal and we call in aid that comparison as one which powerfully assists the preference this Court should feel for the disqualifications in this case upon declaration of contravention being penal. May it please your Honours.

GLEESON CJ: Thank you. Yes, Mr Macfarlan.

MR MACFARLAN: Your Honours, in our submission, the task for the Court is the discernment of the legislative intent as to the purpose for which the relevant orders are to be made. Saying that the making of one of the orders in question would deprive a person of a right or privilege, even personal liberty, which is not in question in this case, but saying that does not answer the question as is illustrated by the decision of this Court in Chu Lim, detention may be penal in character or it may not be. It depends upon the purpose for which the detention is imposed. That must take one back to the statute, in our submission, to see what the legislature has said about this.

Your Honours, the case as put to the Court of Appeal and as determined by the Court of Appeal was as to whether the disqualification order that was sought rendered the proceedings penal. I am not suggesting this is not within the ambit of the notice of appeal, but the argument before your Honours seemed to embrace the alternative proposition that the declaration prayer or prayers themselves, quite apart from the prayer for disqualification, rendered the proceedings penal in character. I will, therefore, deal with that submission and I will do so after focusing on the issue that was dealt with below, namely, the question of the disqualification orders.

Your Honours, we accept that if one uses the term “protection” in a broad sense, then it is difficult to find a dichotomy between protection and punishment, because protection, in a broad sense, embraces notions of deterrence both to the individual defendant and to other persons. In this case, we do not use the term “protection” in that broad sense. The term is used in this case in a narrower sense. It is concerned with the question of the fitness or otherwise of a person, the defendant, to manage corporations.

Your Honours, if that is what, on the proper construction of the legislation, is required to be the focus of the court’s deliberations concerning a disqualification order, rather than the question of punishment, then we submit the seeking of the order does not constitute the proceedings penal. One can test the matter, we submit, your Honours, by hypothesising a situation in which the court had determined or concluded that neither the fact of the contravention, nor any other evidence, indicated to the court that the defendant was unfit to manage corporations. Could the court, in that situation, consistently with the legislation, then proceed to say, “Nevertheless, despite the defendant being fit to manage corporations, I will impose a period of disqualification as a punishment”?

KIRBY J: Yes, but why does what Chief Justice Gleeson said in Labrador not apply? If the search is for the legislative purpose, as I would be inclined to agree with you, why do we not just take the legislature at face value? They have used the words “civil penalty”. “Penalty” implies, on its own at least, a punitive objective. Why would we not say, well, that is what the legislature has said, end of question?

MR MACFARLAN: Your Honour, there is more to the question of the construction, we submit, than that, but let me just give a brief response to that.

KIRBY J: It stands at the threshold. It seems to me it is a dagger pointed at your heart.

MR MACFARLAN: No, your Honour. I can see your Honour proffers it in that fashion, but the expression “civil penalty provision” is simply a designation of those provisions which may give rise to a penalty order. It is not to say that all orders that may be made as a consequence of contravention of that provision are necessarily penalty orders.

KIRBY J: A question was raised today as to whether it is some peculiar Australian term of art that by the juxtaposition of civil with penalty implies that it is not really a penalty because it is a penalty that is draped about with the garment of a civil character.

MR MACFARLAN: We do not contend that, your Honour. It is clear that penalties can be sought in civil proceedings and we would suggest that the word “civil” there is indicative of the fact that the legislature intended that the procedures have, at least in part, a civil character.

GLEESON CJ: And it was also, was it not, for the benefit of people that they would not be stigmatised as criminals? Was that part of the idea behind it?

MR MACFARLAN: Yes, I think it was, your Honour.

KIRBY J: Was it something we borrowed from the American anti-trust law? Was the phrase borrowed from the United States or was it a home invention?

MR MACFARLAN: I cannot say, your Honour.

GLEESON CJ: The United States anti-trust law historically used the device of treble damages as a sanction against contravention and that was picked up by the Australian Industries Preservation Act in the early days of Federation here. Was the expression “civil penalty” used to describe treble damages?

MR MACFARLAN: I cannot say, your Honour, but if - - -

GLEESON CJ: You might just have a look at that and give us a note about it if you find anything.

MR MACFARLAN: Yes, we will, your Honour.

KIRBY J: There was probably something in the second reading speech by Senator Murphy for the Trade Practices Act if it came in in the Trade Practices Act first time.

GUMMOW J: I think it had something to do with the double jeopardy clause in the United State’s Constitution too, if you look at the cases in footnote 15 in Labrador - - -

MR MACFARLAN: We will check that, your Honours. Just to continue my answer to Justice Kirby’s question, one illustration we would submit with respect to the correctness of the proposition I put is that a compensation order is listed as one of the civil penalty orders. We submit that that could not properly be understood as being punitive in character.

KIRBY J: Yes, but if it is $90 million, that is beginning to sound like a little bit of punishment.

MR MACFARLAN: Well, any order is - - -

KIRBY J: That is going to clear out a person’s entire assets in the normal circumstance, unless they are Mr Murdoch or Mr Packer, and that is going to be a pretty devastating consequence in their life, the life of their family, their style of life, and force them into bankruptcy. All of that sounds punitive.

MR MACFARLAN: Any order, your Honour, is capable of being punitive if one focuses on the effects – an injunction, any order for damages – but the inquiry we submit must be as to the purpose for which the order is made. Going back to Chu Kheng Lim, detention would no doubt be considered punitive if one were just looking at the effects on the person detained.

KIRBY J: It is a classification, but you surely do not take out of account the effect. I mean, there may be some who would say the detention classification as non-punitive is a bit of a fiction, too.

MR MACFARLAN: All I can do, your Honour, is accept and adopt - - -

KIRBY J: Many of the people who are in Woomera might have thought, after many months or even years, that it is beginning to feel a little bit like punishment. Some have told this Court that is how they feel.

MR MACFARLAN: Your Honour, every defendant in every civil action would be able to at least argue that the claim against him or her was punitive in nature because the prospective orders were going to be onerous to that defendant, but that is not enough, in our submission. The purpose for which the orders are made must be the critical factor.

HAYNE J: That is, no account is to be taken, you say, of the effect on the person against whom the order is made. Is that right?

MR MACFARLAN: That is right, your Honour.

HAYNE J: How does that work, particularly with the pecuniary penalty order or any of the orders under Part 9.4B? They have several purposes, they have various effects. Why do we focus on one to the exclusion of others?

MR MACFARLAN: With a pecuniary penalty, your Honour, the court is setting out – perhaps inter alia, but at least in part – to punish the defendant by making the order. Our submission is that if one looks at the legislation here, the court is not setting out to do that, either in whole or in part, in disqualifying a defendant. Now, we may be right or wrong about that, but that, we submit, is the proper inquiry and it is a matter of construing the legislation in that respect.

GLEESON CJ: Could a court properly make an order for disqualification primarily for purposes of denunciation and general deterrence? Suppose, for example, the person disqualified was an elderly man who had gone into retirement and there was no practical possibility that he would ever be interested in trying to manage a company again. Could a court nevertheless impose a disqualification for the purposes that I mentioned?

MR MACFARLAN: In the context of some legislation, perhaps. We would submit not in the context of this legislation. That is a matter of discerning what are the purposes which the legislature is indicating should be taken into account in the making of the order.

HAYNE J: That seems to isolate the disqualification provision from any consideration of the provisions which, in this case, are said to enliven it, namely, 180(1) – it happens to be of the law, not the Act, but, in effect, the directors’ duties provisions, coupled with, as they are, are they not, the general excusing provisions. So, by hypothesis, the disqualification provisions are engaged only in circumstances of breach which should not be excused. Is that right?

MR MACFARLAN: Yes, your Honour, that is a precondition to the making of an order under 206C.

HAYNE J: Are we to ignore that fact in characterising the operation of the provision, that is, it being a provision that is engaged if, but only if it is established that there is default which should not be excused, nonetheless fasten only on its protective purpose. Is that the way the argument runs?

MR MACFARLAN: Yes, it is a neutral factor, your Honour, because it is consistent with what we say is the reason for the existence of the precondition, namely, that the contravening of this provision raises an issue which needs to be considered by the Court as to the fitness of the defendant to manage corporations. Your Honours, if one takes the Trade Practices Act, for example, to obtain damages under section 82 - and let me take an individual for the moment who has alleged to have knowingly been involved in the contravention - a precondition is the establishment of a contravention of the Trade Practices Act. That does not make the action for damages penal, nor, to take the case before Justice Deane in Refrigerated Express, injunctions were sought alleging contraventions of Part IV. That did not render the proceedings penal. If the prosecutor had been someone who was entitled to seek a pecuniary penalty, and that had been sought, that would have been different.

HAYNE J: But neither preclusion from further contravention by the making of injunction, nor compensation for the consequences of contravention already occurred, seems to have the same flavour as other orders not directed to compensation of those who have suffered by reason of the past loss.

MR MACFARLAN: The disqualification order has a different flavour, but it does not have a punitive one, your Honour. The word “disqualification” itself rather suggests something concerned with fitness, it perhaps carries a connotation that the word “banning” or “dismissal” might not have, but it is a good starting point for considering whether this is a provision concerned with fitness alone. Could I, having identified it as a matter of statutory construction, could I then go to the context in which section 206 appears, and particularly the immediate context in Part 2D.6, and make some comments first about the surrounding provisions, section - - -

KIRBY J: Mr Macfarlan, I should have asked Mr Walker this, but experience teaches from Daniels and earlier cases, that these sorts of problems are the subject of a lot of writing in the specialist literature. Has there been discussion in the specialist literature of this case and of these decisions, or not? Do you know?

MR MACFARLAN: I am not aware, your Honour.

KIRBY J: Could you have a look at that when you are sending your note in too, please, because I found that helpful in – though I came to a contrary conclusion in Daniels, I found it very helpful to read the material which laid emphasis upon seeing how this very large statute is intended to operate within its own world. It is easy with us who live with the common law to know our own world, but knowing how this statute operates is very important for carrying into operation the purpose of Parliament, which is your starting point.

MR MACFARLAN: We will look at that, your Honour. Section 206A, your Honours, is the provision which provides for an offence in the case of someone who is disqualified acting or participating in the management of corporations. It is a general provision applicable to all the circumstances which have led to disqualification and all the different types of disqualification orders and is, in effect, a unifying provision.

HAYNE J: It is subsection (2) that works the vacation of any office then held, is it not?

MR MACFARLAN: That is so, your Honour, yes. Whilst the provision which concerns qualification to be a director does not impose any qualification other than an age limit – that is 201B – it can be seen, we would submit, as, in effect, containing a presumption of fitness subject to a finding of unfitness and consequent disqualification in accordance with Part 2D.6. Section 206B, your Honours, provides for automatic disqualification in the case of, for one thing, convictions on indictment for offences relating to the making of decisions concerning:

the whole or a substantial part of the business of the corporation; or

(ii) concerns an act that has the capacity to affect significantly the corporation’s financial standing; or –

in (b)(i) convictions for a contravention of the Act and certain dishonesty offences. In (c), your Honours, conviction:

of an offence against the law of a foreign country that is punishable by imprisonment for a period greater than 12 months –

causes automatic disqualification. We would submit that is an indicator that this is not a punishment provision. We would submit it is unlikely – or I could perhaps put it stronger than that - - -

GUMMOW J: It may be a forfeiture provision. People forfeit their rights. It is a forfeiture provision.

MR MACFARLAN: Your Honour, there is no doubt that a right or privilege is lost. That is true in many cases, the licensing cases, the Solicitor’s Case. It is a question of why that liberty or right is taken away from the defendant. It may be because the defendant is simply unfit to exercise the right or privilege.

GUMMOW J: Because he is a Roman Catholic.

MR MACFARLAN: Attitudes change over time.

GUMMOW J: Of course, there will be a change. That is where they came in.

MR MACFARLAN: At that time, the attitude was - - -

GUMMOW J: If you had been arguing before Lord Hardwicke, you have been saying what you have been saying now, except it would be all about Roman Catholics, and everybody would be sitting there nodding, if it was a penalty, forfeiture and the privilege applied.

McHUGH J: And you referred to the case of the legal practitioner, but in Scott v Miller Vice-Chancellor Page would have no doubt in that particular case that in proper circumstances the defendant could have objected on the basis that it made him liable to be struck off the rolls of solicitors.

MR MACFARLAN: Authority in this Court, your Honour, however, indicates that the power to disbar is purely protective.

McHUGH J: I know, but that is in terms of penalty. It is a question of context. I have the greatest difficulty in understanding what this argument about purpose and effect has to do with the case, with great respect. In other contexts it may be important. In the detention cases the legislature says we have no intention to punish. This has nothing to do with punishment. This is to protect the community. Therefore, it is a law with respect to immigration and so on. The barrister says “I’m struck off the rolls”. The court says “Yes, but it is to protect the community”. But here it is undoubtedly protective in one sense, but it is also a penalty. In the Commonwealth period, people were branded and they carried the brand around. In our society a director who was disqualified for 10 years is deprived of a civil right and has to carry that around. His reputation or her reputation in society is lessened. I have to tell you, Mr Macfarlan, that provisionally it just seems to me to be a clear case of a penalty.

MR MACFARLAN: Well, your Honour, I can put the argument we might have put - - -

McHUGH J: I know, I have studied the judgments. I have studied your arguments, but at the moment my thinking is that it is a fairly clear case.

MR MACFARLAN: Your Honour, they approach it in this way - - -

McHUGH J: Particularly since the language of the legislature.

MR MACFARLAN: I need to say a little more about that, but we do not accept that the language does point in that direction. Could I just refer to one matter in a really specific answer to what your Honour has said. The previous section 1317EA(4) is of importance. That was a section which was current until the CLERP amendments of 1999 and your Honours will see it attached to our written submissions. Your Honours see there is a page with the CCH No 31,914 at the top and the heading “Division 2 - Civil penalty orders” and at that time the disqualification power was in the part concerned with civil penalty orders. It was taken out of that by the CLERP amendments. Section 1317EA(3) empowers the court to make orders including:

(a) an order prohibiting the person . . . from managing a corporation;

(b) . . . a pecuniary penalty -

but, subsection (4) says:

The Court is not to make an order under paragraph (3)(a) -

that is prohibition on management -

if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation.

McHUGH J: Could I tell you what my principal difficulty is. I do not think that there is a dichotomy between protection and punishment in this area, and I think it is a mistake to think of penalties as punishment. I would have thought that, for instance, a pecuniary penalty is a payment of money to the plaintiff or to the informant that is not compensation for the infringement of some right of the plaintiff or the informant. That is a penalty. So far as the 1317H claim is concerned, it may well not be a penalty, because you seek to compensate a company. Even though you bring it, it is not an infringement of your rights. But when you get into the area of disqualifying somebody and depriving that person of the civil right to be a director of a company for a long period, how can it be anything else but in the nature of a penalty? What is the difference between it and forfeiture?

MR MACFARLAN: Could I crystallise the question in this way, your Honour, and hypothesise the legislation having exactly the provisions as it does, but an additional phrase in there, which said something to the effect, “If the court is satisfied that the defendant is unfit to manage corporations, the court may order disqualification”.

GLEESON CJ: The penal laws – to which reference has already been made in connection with Lord Hardwicke – included, for example, provisions that Catholics could not become lawyers. That was a penalty. Edmund Burke was a member of the Church of Ireland because his father, who had been a Catholic, had to become a member of the Church of Ireland in order to be admitted as a lawyer. They were called “penal laws”.

MR MACFARLAN: There were a lot of people in those days, your Honours, who thought Catholics should be punished in different ways.

GUMMOW J: They were a security risk.

KIRBY J: Well, that is the point. They were not regarded as loyal to the Crown, and many of them were loyal to the Crown.

GUMMOW J: You had to be alert, and not alarmed - - -

HAYNE J: Here are the fridge magnets.

MR MACFARLAN: The court, in those days, would not readily have come to the conclusion that the order was simply made for the protection - - -

McHUGH J: I would have thought that was the very first thing they would have said. “This is very necessary. If we do not keep these Catholics out of positions of power, the Jesuits will be taking over”.

KIRBY J: No, no, it was that they kept rising in favour of the Stuarts.

GLEESON CJ: All laws are made for the protection of the public, in one sense.

MR MACFARLAN: Yes, that is why I sought to indicate that we use the word “protection” in a narrower sense. We suggest the legislature is directing attention, and only attention, to the question of fitness to manage corporations. That is why I referred particularly to 1317EA(4), that the court is not entitled to make an order if it is satisfied that the person is fit and proper. Until 1999, it could not make an order, we would submit, simply by way of punishment, if the person was fit and proper.

It was said in the explanatory memorandum that there was no substantial change between the clerk position and the rewrite that became the Corporations Act, and, for various reasons, we have said that that statement should not be taken at face value. I will refer to that later, but to the extent it is we would call it in aid of our position, namely, it being clear, we would submit, that under the legislation as it existed before the Companies Act a person could not be disqualified if the court took the view that the person was a fit and proper person – that the legislature has indicated there was not intended to be any substantial change to that.

GUMMOW J: You rely on this Kippe Case [1996] FCA 517; 67 FCR 499, do you not?

MR MACFARLAN: Yes, your Honour.

GUMMOW J: That was a banning order case. At 506B the Full Court of the Federal Court seems to have fixed upon the circumstance that under the banning section there was “no question of any exaction of money as a sanction”.

MR MACFARLAN: We would not say that would be sufficient. There could be a non-pecuniary penalty. We certainly relied on that below but, of course, in this Court it is of less use to us but, nevertheless, it is something we submit the Court should have some regard to.

HAYNE J: But other than what might loosely and inaccurately be referred to as the stream of sentencing authority, that is, the cases considering for how long should you ban someone or disqualify someone, Kippe is the only case, is it not, in the intermediate or first instance courts that adopts principles which would support your position?

MR MACFARLAN: I think it is the only one either way, your Honour.

HAYNE J: Yes.

MR MACFARLAN: Yes. It is the only one that comes close to actually determining the present question.

HAYNE J: Chief Justice Spigelman referred to a large number of cases. Am I right in understanding the cases to which his Honour referred as being cases focused upon the question, “How long should disqualification be ordered, or should disqualification be lifted, and what purpose am I to fix a period by reference to?”

MR MACFARLAN: That is the position, yes. The legislation in question in Kippe’s Case, which is the basis given by our opponents for seeking to distinguish the decision, that is that it was concerned with legislation rather than the general law position, said that statements were not admissible in evidence in a proceeding for the imposition of a penalty. We would submit that that is a reflection of the appropriate approach under the general law. Is the proceeding for the imposition of a penalty and appropriately adverting to the relevant purpose for which the order is to be imposed?

Your Honours, 206B of the Act is referring to the question of foreign country. It then refers to deeds of arrangement in subsection (4) and compositions. Subsection (4)(b), for example, refers to a composition where final payment has not been made. There is obviously not necessarily any breach of any law or any illegality or even any misconduct envisaged by that provision. It may or may not be such misconduct but it is necessary for that to be attracted. Nevertheless, it is a circumstance which raises or may raise an issue as to the defendants’ fitness to manage corporations. Hence, it is a circumstance which leads to the automatic disqualification for a period.

I will skip over 206C for a moment because that is the provision in question. Section 206D relates to a power of disqualification, essentially concerning insolvency and non-payment of debts. Subsection (1) relates to failure of two or more corporations. Under (b), the court has to be satisfied that:

(i) the manner in which the corporation was managed was wholly or partly responsible for the corporation failing; and

(ii) the disqualification is justified.

It is not necessary, your Honour, that a particular officer be shown to have been at fault. It is conceivable that the management might have been partly responsible for the corporation failing, but this particular officer might be completely blameless, but it is a circumstance which the legislature has indicated causes, or should cause, the court to consider, we say, the fitness of the defendant to manage corporations.

The definition of “failure” which is contained in section 206D(2) is broad. It includes, under (b), a voluntary liquidation and simply the fact that creditors are not fully paid. It does not necessarily connote any misconduct on the part of anyone and, in particular, does not necessarily connote misconduct on the part of the defendant but - - -

GLEESON CJ: Mr Macfarlan, can I just take you back for a moment to Kippe, before we leave that completely.

MR MACFARLAN: Yes, your Honour.

GLEESON CJ: In 67 FCR at the bottom of 507, in the concluding paragraph, the Federal Court there refers to what they describe as an “important but not controlling consideration”. Is that consideration urged on us in the present case?

MR MACFARLAN: I am sorry, your Honour, at the foot of 506?

GLEESON CJ: 507.

MR MACFARLAN: 507. It was a rather different context there, your Honour. It was concerning, of course, the admissibility of evidence given, but we do have a somewhat similar submission here, that the ramifications of a finding here that the disqualification order rendered the proceedings penal - - -

GUMMOW J: I guess one point is, what is the present equivalent of the section 68 they were talking about? The information-seeking section which had in it the preservation of the penalty protection.

MR MACFARLAN: I will need to check on that, if we could do that over lunch, your Honour.

GUMMOW J: They seemed to say section 68 is important and if we give too generous a reading of the exception to 68, that will obstruct the whole Act.

GLEESON CJ: You can come back to that after lunch, if you prefer.

MR MACFARLAN: Yes, if I could just add one thing. Justice Austin referred below to the difficulties that would result in relation to the case management of the proceedings if the privilege were applicable. Now, that is not to say that he saw that as a controlling matter. He did not.

HAYNE J: Why? What is the difficulty? You run on and wait until the Commission has finished its case and then you are led into this wonderful world that the defendants may or may not take you. Where is the difficulty?

MR MACFARLAN: The difficulty, your Honour, in this case is that the proceedings relate to the financial affairs of a very large corporation over a period of a number of months. There is an extremely long and detailed report of a financial expert about those financial affairs. The defendants have indicated that they propose to adduce evidence from one or more financial experts - - -

HAYNE J: That is generous of them to have told you that, yes.

MR MACFARLAN: - - - yes – dealing with the financial position of the company but going below the level of the accounts that are being prepared down to the – perhaps not primary documents but at least a level below that, in relation to a corporation that has had many hundreds of thousands, if not millions, of transactions. So when we see that report or hear the evidence of that expert, it is inevitable that a lengthy adjournment will be required in order to deal with it.

HAYNE J: It was said in Daniels that one of the purposes of the privilege is to have persons who are said to be in the position of your client prove their case. Case management does not seem to me to bear upon the application or validity of that proposition.

MR MACFARLAN: It is certainly not a controlling factor, your Honour. It is a background factor.

GLEESON CJ: Anyway, you will let us know after lunch what you have to say about what it is said in Kippe at the bottom of 507?

MR MACFARLAN: I will, your Honour, yes.

CALLINAN J: Mr Macfarlan, can I ask you this question about the Act. Section 597(12A), which is the section which entitles a person to take the objection during an examination so that the evidence subsequently cannot be used in proceedings, makes no distinction between a civil or a criminal penalty. Should we draw any inference from that? I mean, a penalty is a penalty – a rose is a rose, a penalty is a penalty. That is a point against you perhaps.

MR MACFARLAN: Certainly the pecuniary penalty is a penalty and, if we are wrong about disqualification, it is a civil penalty but in a more general sense it is a penalty.

McHUGH J: I would like your assistance on this because it seems to me that a penalty is a loss incurred or payment made as the result of a breach of the law that is not compensatory in character. If that is what a penalty is, that is the beginning and end of this case, is it not?

MR MACFARLAN: It would be, your Honour, but we do not agree with the limitation of the proviso to compensatory orders. The proviso should rather be it is the loss of a privilege or right as a result of a punitive purpose. That is one other than a compensatory one, other than one that here relates to the fitness of the person to exercise the right. There may be other possibilities but the element necessary is one of punishment, we submit.

I think I have said what I need to say about section 206D, your Honours. I will skip 206E for the moment because that is one of the sections in contention here. We say as to section 206F that your Honours do not have to determine the validity or otherwise of 206F. It is simply a matter of taking it into account as part of the context and it bears the hallmarks, we would submit, of a non-penal provision and administrative authority determining a question relating to the fitness of a person to manage corporations and not a judicial-type determination of a question of whether the defendant should be punished.

Again, your Honours, there are parts of 206F which indicate that disqualification may be imposed otherwise than as a result of some misconduct or other blameworthy conduct on the part of the defendant. Section 206F(2)(b) speaks of:

the person’s conduct in relation to the management, business or property of any corporation –

being able to be taken into account. That is a provision which is mirrored in other of the sections, including 206C. True it is in a criminal sphere a person’s antecedents or other conduct may be taken into account to reduce the sentence that is imposed. Conduct in other connections could not be used by the court to increase the punishment that was otherwise considered appropriate in relation to the crime. Here, however, the position is different. This provision is a broad one. There may conduct of the defendant in relation to other corporations which does not constitute contraventions in any way but may indicate lack of fitness to manage corporations. That is able to be taken into account. We submit the ability to take such matters into account is inconsistent with a punitive purpose because - - -

McHUGH J: But it seems to me that you take into account all the sorts of things that you take into account in a criminal case: the conduct of the defendant, whether it was done deliberately, or whether it was done negligently, or out of ignorance. All these matters go to the length of disqualification, the same as with a prison sentence. Prison sentences serve various purposes: protective of the community, deterrence, and they also have an element of punishment.

MR MACFARLAN: In the criminal sphere, your Honour - - -

McHUGH J: In.....case Justice Bryson recognised the punitive nature of an order of this nature. He actually used the term, did he not?

MR MACFARLAN: That is so. He was focusing on the effects, your Honour.

McHUGH J: I know.

MR MACFARLAN: A focus on the effects is not appropriate, in our submission.

GUMMOW J: But is not what Justice McHugh has been putting to you borne out, I have to say, by what I said in the Abbco Case [1994] FCA 1279; (1994) 52 FCR 96 at 143E? That paragraph, and other paragraphs as well. People get hooked into this notion of penal and crime, even in lease disputes and so on.

MR MACFARLAN: Your Honours, the claim that compensation would be penal - - -

GUMMOW J: This case seems to have been argued and conducted below on the basis that it is a Corporation Law case. Well, yes, but not just yes. From that, all sorts of subsidiary problems seem to be flowing.

MR MACFARLAN: Your Honour, can I ask, rhetorically, where is the line to be drawn if the onerous consequence of the orders is the decisive matter? Why is not a compensation order of any amount punitive?

McHUGH J: Because it is not a penalty. It is the difference between liquidated damages and penalty. It is a sum which is not compensatory. It is not proportional to the damage suffered, not proportional to the infringement of somebody’s right. Take, for instance, 1317G:

A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if –

there is a declaration under 1318E. Let us assume you had a case where you were seeking such a pecuniary penalty under 1317G. Would you concede that that was a penalty in the sense that the Associated Collieries Case speaks of a penalty?

MR MACFARLAN: Yes, an order under 1317G is penal in nature, your Honour, because at least part of the matters to be taken into account by the - - -

McHUGH J: The moment you make a declaration under 1317E, you are liable to have such an order made against you. Not necessarily in this case, but maybe next week.

MR MACFARLAN: Such an order may be made.

McHUGH J: Well, is that not sufficient?

MR MACFARLAN: One of the preconditions has been satisfied, but that did not cause Justice Deane in Refrigerated Express to say the order sought there was penal. A precondition was the proof of a contravention. The order sought was an injunction. The injunction had to be considered on its own merits.

GLEESON CJ: What do you say about that Anshun point that was raised earlier in this connection? It was put against you that the possibility existed in a future case of basing an order for a pecuniary penalty upon a finding of a contravention in this case. Is that a practical possibility in these proceedings?

MR MACFARLAN: No, it is not, and if the occasion arose I would indicate my instructions that no such proceeding would be brought.

HAYNE J: Are you speaking only of these appellants, or are you speaking more generally? That is to say, is your submission that proceedings framed in the way these proceedings are would preclude subsequent separate proceedings under 1317G, or are you simply saying, “We are not going to do it against Mr Rich and others”?

MR MACFARLAN: Your Honour, the submission extends to the former and includes the latter. If proceedings are brought in this fashion seeking various consequential orders such as compensation, declarations and the like, one could not envisage that it will be opened to the same plaintiff in later proceedings to seek a different, an additional order in respect of the same contraventions. This is one of the questions adverted to by Justice Deane. The distinction he drew was between a proceeding which was for the imposition of a penalty and he held the proceeding before him was not of that character. He then adverted to the possibility of particular objections being taken in respect of possible consequences that may ensue in other proceedings and here - - -

GUMMOW J: But other proceedings taken by another party. That was critical to his reasoning of it.

MR MACFARLAN: Possibly, yes.

GUMMOW J: Well, not possibly, but actually.

MR MACFARLAN: That would be consistent with what I am putting, your Honour, that it would not be practical.

GUMMOW J: At the bottom of 212 and going over to 213:

In my view, penalties pursuant to s.76 of the Act can only be imposed by the court in proceedings by the Minister or the Commission - - -

MR MACFARLAN: Yes, and to apply the notion here, his Honour Justice Austin held there was no right to being excused in limine, but there was a possibility of the taking of particular objections. That would depend upon the defendant showing at the time of the objection being taken that there was a risk of the material being used in other proceedings against the defendant to advance a claim for a penalty.

Here, that would not be so. Unless the defendant could satisfy the court that ASIC might be able to take such proceedings and might do so, it would not be able to support those particular objections, and one of the relevant evidentiary matters would be what ASIC communicated to the court about the position. If it undertook that it would not do so, it would preclude or make it clear that that risk did not exist.

Your Honours, 206G, “leave to manage” – we submit that this is suggestive of the relevant criterion in relation to this Part being one of fitness to act, rather than punishment. One cannot reduce a criminal sentence simply by application to the court. The question of parole is built into the original sentence. The sentencing judge fixes a non-parole period and contemplates that there will be administrative consideration in due course to the release of the defendant on parole in the period between the expiration of the non-parole period and the expiration of the sentence, but that is not analogous to an ability to apply to reduce the sentence. That, your Honours, being the immediate context in which 206C and E appear, I return to 206E - - -

GLEESON CJ: Perhaps you would like to come to that after lunch, Mr Macfarlan. We will adjourn until 2.00 pm.

AT 12.59 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

GLEESON CJ: Yes, Mr Macfarlan.

MR MACFARLAN: Your Honours, could I turn to the question of Kippe’s Case and respond to your Honour the Chief Justice’s question about that. The passage your Honour referred to at the foot of 507 is one that would not in terms be applicable in the present case. Secondly, section 68(3) remains in the same terms in the cognate Act, the ASIC Act. Thirdly, the Kippe issue would be likely to arise directly at a later stage of these proceedings.

KIRBY J: Could you explain how.

MR MACFARLAN: Because, as was mentioned earlier, your Honour, the defendants have been examined by ASIC and one would anticipate a tender of transcript and a reliance upon a characterisation of the proceedings as ones for a penalty within the meaning of the statutory provision.

KIRBY J: But is the privilege against self-incrimination lost if it is not claimed at the time? I do not want to get into matters that might come up later, but it would seem to me that there may well be a different question as to what happens at this stage and what happens at an earlier administrative stage.

MR MACFARLAN: Your Honour, we do not contend it has been lost. The issue that would arise at the later stage is whether the terms of section 68(3) have been satisfied, and the decision at this stage of this Court may determine that question, or it may not. If your Honours, for example, said Kippe’s Case is distinguishable because it was dealing with a statutory provision that poses a different test than the general law test, then that would leave for argument the application of Kippe’s case at the later stage of the proceedings.

KIRBY J: Your point is that the scheme of the Act which contemplates this system of interrogation which is integral to the scheme that Parliament has laid down, rather suggests, certainly at the preliminary stage, and by inference at the later stage when that material comes to be used, that Parliament intended that it would not avail – that a plea or complaint of self-incrimination would not avail against the statutory scheme.

MR MACFARLAN: We have not argued that such privilege as there may be has been abrogated, your Honour, so if that is what your Honour had in mind - - -

KIRBY J: That is a matter that I have difficulty with, because that seems to be at the heart of what the appellant wishes to protect. Anyway, you have to take your own course and I have to take mine.

MR MACFARLAN: Well, that is as the proceedings have been structured, your Honour. The contention has been - - -

KIRBY J: I realise that, but it just leaves it in a somewhat awkward conceptual situation, as far as I am concerned.

MR MACFARLAN: Your Honour, for better or for worse, the issue that we have raised - - -

KIRBY J: That is a legal issue, is it not? It is not an evidentiary matter.

MR MACFARLAN: Yes. If your Honours want to find that the privilege has been abrogated, I will not be arguing against it, but I do wish to say that we have not argued that to be the case. Next, in relation to matters raised by your Honour Justice McHugh, could I refer to part of the judgment of the Chief Justice below in the appeal book at page 59, paragraph 24. His Honour is there dealing with Smith v Read and what was said by Lord Hardwicke, and quotes his Lordship in paragraph 24 to this effect:

“The laws of bankrupts are not all penal laws, and in the cases of aliens, bastards etc., there is a difference where the disability arises from the rules of law, and where it is imposed as a penalty”.

With respect to his Honour the Chief Justice below, he correctly comments that that focuses on a question of purpose. His Honour said:

The emphasis on purpose, distinguishing a disability arising from a “rule of law”, is relevant for present purposes.

We would suggest that that is what Lord Hardwicke had in mind, that is, an order made for the purpose of imposing a punishment – that is, imposed as a penalty. His Honour was distinguishing that from disabilities arising from the rules of law, which may be similar to what one sees in the present legislation, where a bankrupt is prevented from holding office as a director, for example.

GUMMOW J: Rules of common law he is talking about, is he not?

MR MACFARLAN: He is at that stage, yes, your Honour.

McHUGH J: With respect to your submission, he is talking about the operation of a rule of law made by Parliament, as opposed to an order of a court. That is the difference. If the bankruptcy law says, “Bankrupts shall not act as a company officer for five years, full stop”, it operates by way of a rule of law, but you are seeking orders in proceedings to establish something.

MR MACFARLAN: We are submitting, your Honour, that contemplates an emphasis on purpose, as his Honour the Chief Justice below said. The expression “imposed as a penalty” connotes a reference to purpose, is our submission. Likewise, on the previous page of the appeal book, page 58, paragraph 19, his Honour quoted Wigmore:

A penalty may be defined as a liability to pay money or to yield up a public privilege by way of punishment.

Again, we would submit, a connotation of purpose or intent. Wigmore goes on to say:

When the penalty lies in the yielding up of a privilege, a distinction therefore seems proper between inflicting a punishment and restraining the continued improper exercise of functions. The process of impeachment of an official seems to fall in the former class but most other processes of removal or restraint (including disbarment) would ordinarily come within the latter description.

That is, we submit, analogous to the type of distinction we have been attempting to make here. Further, page 60 of the appeal book, the end of the quote in paragraph 26 or the first quote in that paragraph of Lord Esher, the last sentence:

It is imposed not as a punishment upon the defendant, but as compensation to the plaintiff -

again, we submit, a reference to purpose. Your Honours, if loss of office or loss of the right is sufficient, then orders made under section 206D would be penal, for example. One is made following upon such matters as insolvency and entry into a deed of arrangement.

GLEESON CJ: That is not 206D, is it?

MR MACFARLAN: No, I am sorry. 206D, yes, failure of corporations, failure of more than one corporation in circumstances where, as I pointed out before, there may be no misconduct shown on the part of the defendant. The management may have been partly responsible for the failure but it may not have been the particular defendant’s fault, yet the court can make an order which, if our opponents are correct, would be characterised as penal.

GLEESON CJ: The additional requirement is that the disqualification is justified.

MR MACFARLAN: Yes.

GLEESON CJ: It might be difficult to see that a disqualification would be justified if a person had no connection with that aspect of the management that caused the failure.

MR MACFARLAN: We would submit, it would be a question of the court forming a view about the fitness of that person to be a director. It may be that the person’s conduct did not amount to contravention or to what can be described as misconduct, but, nevertheless, it might reflect on the person’s fitness to manage corporations.

GLEESON CJ: It does not mean, “Two strikes and you’re out”, but what it means is, “Two strikes and you’re subject to scrutiny”.

MR MACFARLAN: Yes. The two strikes raise an issue, we would submit, as to the possible unfitness of the person to manage corporations. Similarly, there would be real issues as to section 206F as to its constitutionality if the loss of office as such was a penal consequence, because ASIC can cause that situation to come about as a result of a proceeding under section 206F. We would submit 206F is far more suggestive of an administrative act, taken for the purpose of ensuring that only fit persons manage corporations.

In terms of relevant authorities, reference has not yet been made, your Honours, to those dealing with the issue of retrospectivity, and I can give your Honours a reference to those in the judgment of the Chief Justice below at 68 of the appeal book. There is some analogy, we would submit, in the issue that arises as to whether a statute should be construed as having a retrospective operation. There is a question of the rights of the defendant that come into play as they do come in to play in the present situation, and your Honours will see the cases there, but in R v Vine, Chief Justice Cockburn, paragraph 53 of the judgment, said:

the object of the enactment is not to punish offenders, but to protect the public against public-houses in which spirits are retailed being kept by persons of doubtful character -

and it was held that that statute was not penal. Justice McColl refers to these and more authorities of that ilk at appeal book 137. Your Honours, returning to where I was, section 206C(2), reference has been made to the word “justified”. That takes colour, we would submit, from subsection (2), which says that:

In determining whether the disqualification is justified, the Court may have regard -

inter alia to –

(a) the person’s conduct in relation to –

other corporations. I mention those provisions are mirrored in D, E and F, also suggesting some unity in the provisions, uniformity of provisions, and we would submit, suggesting an identity of purpose of disqualification in the provisions in Part 2D.6. They coincide, in effect, although not in precise language, we would submit, with the provision that they replaced, namely, 1317EA(4) which as I mentioned is attached to our submissions. That is more explicit, I would accept. It says that a disqualification order shall not be made if the court is satisfied that the person is fit and proper, but the clear implication of the provisions that replaced it, we submit, are to the same effect.

As I mentioned, the explanatory memorandum professed that there was no substantial change involved in the so-called rewriting of the statutory provisions upon the enactment of the Corporations Act 2001.

Section 206E, your Honours, is a provision which is relied upon in the proceedings in this case. Our reading of her Honour Justice McColl’s judgment below is that her Honour did not regard this as a penalty, whereas she did regard 206C as a penalty, the distinguishing feature being that 206C has as a precondition the making of a declaration as to contravention. The paragraphs of her judgment, without going to them, which lead us to that conclusion are paragraphs 123, 330 and 337 to 339.

Section 206E can operate without the finding of a contravention by the individual concerned. It is only 206E(1)(a)(ii) of the alternatives that looks to a contravention by the defendant. The other alternatives are that the body corporate has contravened a section and the defendant has been an officer, or that the defendant has been an officer of a corporation that would have contravened the section if the body of which he or she was an officer was a corporation as distinct from a body corporate.

GLEESON CJ: The order for compensation that is sought in this case is an order in favour of the company?

MR MACFARLAN: Yes, your Honour. It is an order for payment to a company, yes. It is ASIC that seeks it. It is an order that the defendants pay the money to the company. If our opponent’s arguments are right, 206E gives rise to claims to penalties also, notwithstanding that no misconduct or contravention need be shown.

HAYNE J: As it happens, the allegations in this case are allegations which seek to engage 206E(1)(a)(ii), are they not?

MR MACFARLAN: That is so. As to the relevance of the so-called sentencing authorities, your Honours, her Honour Justice McColl concluded that the fact that the Parliament had re-enacted the legislation without making relevantly significant changes should not be regarded as some affirmation or confirmation of those authorities. We submit her Honour erred in relation to that and that it is of some relevance that there were authorities starting with Magna Alloys some 30 years ago which described the purpose of the disqualification provision as protective in nature. The legislation has been - - -

GUMMOW J: But for what purpose were they saying that?

MR MACFARLAN: In relation to “sentencing”, to use a different term. Nevertheless, the character of the provisions does not, we submit, change, whether one is talking about them for that purpose or another, because it is, in fact, the very situation that needs to be postulated when one comes to answer the question in the present case. One needs to sit in the armchair of the judge after the proceedings have concluded and see what question the judge can fairly ask him or herself. Can the judge say, “I think this person is a fit person to manage corporations but, nevertheless, I am going to impose this order by way of punishment”? That is the very thing that the judges in these cases, starting with Sir Nigel Bowen in Magna Alloys, said cannot be done. To answer that question is to answer the question, we submit, in our case.

GUMMOW J: Magna Alloys was about a need to obtain consent to act once again, was it not?

MR MACFARLAN: Yes. A number of the subsequent ones were not, but that was the context of that particular case. If our opponents are right on the present issues, Sir Nigel Bowen, in that case, could have said, “This is partly protective, this provision, and it is also partly punitive, and I am going to take that punitive consideration into account”.

Your Honours, one point as to the ramifications of classification of the disqualification order as punitive is that licensing and similar powers which seem to have been regarded as purely regulatory would be or may be regarded as penal. In the decision in La Macchia v Minister for Primary Industry 72 ALR 23 there was a finding that the deprivation of a fishing licence was not the making of a penal order. At page 26 of the judgment at about point 8 on the page this is said:

The first is the argument that, in relying upon a power in s 9A(3A) which did not exist at the time of the conviction of Mr La Macchia, a penal power was exercised retrospectively. There are two answers to this contention. The first is that the Minister was not exercising a penal power even though cancellation imposed a hardship on the applicants by depriving them for a time of their ability to fish commercially.

We would also refer your Honours to the case I mentioned earlier of Chu Kheng Lim (1992) 176 CLR 1 - - -

GUMMOW J: We can almost recite this case, Mr Macfarlan.

GLEESON CJ: Assume we are familiar with that.

MR MACFARLAN: It is a case that is central to our argument, your Honours, not only the judgment of Justice McHugh at 71, but also the judgment of the three Justices at 33, who characterise the detention power as non-penal by reason of the purpose for which it was to be exercised.

GLEESON CJ: Because it was an incident of the power to exclude and deport aliens.

MR MACFARLAN: That was the matter that enabled the purpose to be discerned. The purpose in other contexts could be discerned in other matters but, ultimately, it is a question of purpose, we would submit.

HAYNE J: By saying that, are you asserting that you necessarily end up with a singular answer?

MR MACFARLAN: No. There may well be hybrid powers, your Honours, and certainly different purposes may be able to be taken into account. If it be found that an order for disqualification may be made partly for a protective and partly for a penal purpose, then that is not sufficient for our purposes. The consequence of adopting a principle that concentrates on the effect of the order, we would submit, would be far-reaching. In each case, there would be or may be an inquiry at the outset to determine the effect of various types of orders which were sought on the defendant, for the purpose of ascertaining whether what was sought against the defendant was of a penal character and therefore excused the defendant from discovery and the giving of witness statements.

The analogy, as we submit it to be, to professional disciplinary proceedings has been mentioned. We recognise there are different considerations in that area and that the analogy is not complete. Nevertheless, there is some analogy, we would submit, and we would point out or remind your Honours that this Court has treated medical disciplinary proceedings in a similar fashion, that is, as protective. I will not go to it, but it is Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378 at 396.3.

Your Honours, as to Police Service Board v Morris, we would make three points. The first is, the language used in the statute there was language of a type that can readily be understood to raise the issue of punishment. There is a reference to being charged with an offence, being found guilty, then disciplinary action, including dismissal. Secondly, there does not appear to have been any argument to the contrary, that is, that the dismissal might not be penal.

Thirdly, accepting the view that was expressed in that case does not have the consequence that all dismissals from office are penal. It depends upon the particular statute in question. Her Honour below, Justice McColl, treated that decision as binding on her at paragraph 386 as establishing a binding principle in relation to the loss of office. We would submit it does not do that; it deals with a particular statutory context.

In the decision in Northern Collieries [1910] HCA 61; 11 CLR 738, your Honours, if I could go to that briefly, at 742 this is said about halfway down the page:

But while this proceeding is made a civil action by sec. 13(1) of the Act, it is nevertheless by the very terms of the same provision described as a proceeding for the recovery of pecuniary penalties –

similar to the language in Kippe’s Case.

There is an inherent distinction between a civil action to prevent or redress a civil injury on the one hand, and a civil action to recover a penalty on the other. In the latter case the whole and avowed object of the proceedings is the infliction of the penalty, and the discovery sought of documents relevant to the claim can therefore have no other intended consequence.

We would submit that is the language of purpose rather than effect. Then at the foot of the page:

In the former case there is no such necessary consequence, and whether the objectionable tendency exists or not has to be otherwise ascertained, and claiming immunity upon oath in the course of making discovery is the most usual, but not the only other means of establishing it.

The part particularly relied upon by our opponents, your Honours, at 746 and 747 needs to be seen in context. The passage relied upon particularly is at the commencement of the new paragraph on 747:

Plainly then it is the result to the defendant, and not the personnel of the plaintiff, that affects the determination –

But the previous sentence puts that in context. At the foot of the previous page he says:

Then Lord Watson refers to cases where these penalties are recoverable at the instance of the State, or of an official duly authorized to prosecute on its behalf, or of a member of the public in the character of a common informer. And then comes a passage which entirely destroys the ground work of the suggested distinction even if that were material (1):- “An action by the latter is regarded as an actio popularis pursued, not in his individual interest, but in the interest of the whole community.”

Plainly then it is the result to the defendant, and not the personnel of the plaintiff –

So it is the identity of the plaintiff that his Honour is focusing on and it does not matter if it is the Crown or a common informer. The first part of that sentence, “result to the defendant”, is talking about the imposition of a penalty. He is not saying that one is able to characterise a prayer for an order as a prayer for a penalty or for something else by reference to the consequences to the defendant.

Reference has been made by our opponents to the definition of “civil penalty order” in section 9. Your Honours, it is a convenient identification of the orders which the court may make consequent upon contravention of the civil penalty provision. It does not mean that all such orders are necessarily penal and I have referred to the question of compensation, that being one of the orders listed and submitted that a claim for that would not be a claim for a penal order.

GLEESON CJ: Could the Commission maintain proceedings seeking nothing but an order for compensation?

MR MACFARLAN: Yes, your Honour, subject to the question of declaration. I need to remind myself about that.

GLEESON CJ: The normal party who would be entitled to the damages would be the company. Can the Commission take over from the company a claim for civil damages for breach of a director’s duty?

MR MACFARLAN: Well, the claim by ASIC would have to be pursuant to the statute. It may be on different principles.

GLEESON CJ: It seems to give Foss v Harbottle a bit of a shot across the bows, if that is right.

MR MACFARLAN: It is not pursuing the company’s cause of action. There may be different principles relating to the calculation of damages, for example. There is one view that - - -

GLEESON CJ: What if the people who are in control of the company did not want to pursue any such claim against the defendants?

MR MACFARLAN: Well, there is a statutory right in the Commission to proceed. It is a different cause of action. There may be an argument that making of an order for compensation is discretionary and in that respect, very different from an action under the general law.

HAYNE J: The answer has, I think, got to be complicated a bit by, for example, section 50 of the ASIC Act under which ASIC may cause civil proceedings to be begun if it appears, in effect, from examination that there is reason to set about recovering damages for various causes. I think the answer to the Chief Justice might have to be a rather detailed and complex answer that would take account of those provisions of the ASIC Act, plus of course 1317H and 1317J.

MR MACFARLAN: Yes, well certainly what your Honour adverts to will be relevant to the general law causes of action, but independently of that there is a statutory cause of action. The extrinsic materials, your Honours, can we make a few comments about them. We adopt the approach of his Honour the Chief Justice below to the effect that the comments made in the Cooney Report and in the explanatory paper accompanying the public exposure draft were superseded, and without going to it, that is in paragraph 102 of the Chief Justice’s judgment, but the reason they were superseded was that the provision, which we submit is of considerable importance, namely 1317EA(4) was only introduced into the draft which followed that which was attached to the public exposure draft. That is the provision that says that the court is not to make an order for disqualification if it is satisfied the person is a fit and proper person.

That is the first point. The second point is that the second reading speech of the Attorney-General in relation to the 1991 or 1992 Bill that introduced the Act at that time proceeded upon a misunderstanding, because it spoke – and this is a reference to paragraph 57 of our written submissions – it spoke of pecuniary penalties and disqualification being able to be ordered in the case of serious breaches, but that qualification about serious breaches is only applicable in the legislation to pecuniary penalties and not to disqualification. So the speech proceeded on a misunderstanding of the Bill to which it related, and we submit, for that reason, should be given limited, if any, weight.

The third point is that, in any event, the extrinsic material is of limited use. Ultimately, it is for the Court to construe the legislation. Finally, on this point, the explanatory memorandum relating to the CLERP amendments in 1999 has been relied upon for its statement that it did not intend any substantial changes. We have handed to your Honours an extract from that memorandum and I refer your Honours to it. The second page of the extract has a heading “Rewrite”. It says:

The draft provisions will rewrite without substantial change the existing provisions of the Law about Officers (Part 3.2), Related Party Transactions (Part 3.2A), Oppression (Part 3.4) and Civil Penalties (Part 9.4B). The following paragraphs outline the more significant changes proposed to be made to these provisions in the course of rewriting them –

which sentence seems to indicate that the absence of substantial change must be taken with a grain of salt, because there are what are described as “significant changes”. In particular, if your Honours look at the first – I will just get the reference to it, but one of the changes made was the change to ensure that a breach of the duty of care and diligence did not give rise to a criminal offence. That is a significant change, and has to be seen - - -

KIRBY J: Which paragraph of the memorandum is that, Mr Macfarlan?

MR MACFARLAN: Yes, I am just asking for the reference.

GLEESON CJ: It seems to be touched in 6.129.

HEYDON J: At 6.76, too.

MR MACFARLAN: Yes, it is in paragraph 6.76, your Honours. I am not sure whether your Honours have that in the extract. That says:

It is proposed that a breach of the duty of care and diligence will only give rise to civil sanctions and will no longer provide a basis for an offence under the Law.

KIRBY J: We do not have that.

MR MACFARLAN: I am sorry, your Honour. I apologise for that.

HAYNE J: Some have it.

MR MACFARLAN: Some do.

GLEESON CJ: Why does 6.127 omit reference to compensation?

MR MACFARLAN: I cannot immediately explain, your Honour.

HAYNE J: It is part of the process of simplifying the law, Mr Macfarlan, no doubt, omitting references.

MR MACFARLAN: Yes. The point I would make, your Honours, is that the proposition that no substantial change was made by the rewrite needs to be taken with a grain of salt in light of at least one of the changes that I have referred your Honours to.

The final topic I wish to say something about, your Honours, is the question of the declaration, which seems to have been put on an independent basis as a claim for a penal order. The first point we would make about that is to refer your Honours to section 1317F. That provides for “a declaration of contravention” to the “conclusive evidence”. Then if your Honours look back to 1317E(2), there is a careful delineation of what is required to be stated in the declaration.

HAYNE J: For what purposes would it be relevant to enact 1317F, if, as you say, it is all to be rolled up in one proceeding?

MR MACFARLAN: ASIC is the only one that can seek a pecuniary penalty, but others may be able to rely upon this to make claims for compensation and it seems to be intended as the operation of this.

HEYDON J: It is like section 83, I think it is, of the Trade Practices Act.

MR MACFARLAN: Yes.

HEYDON J: Which other people can use the order as a means of proof.

MR MACFARLAN: In rem, yes, an in rem type of operation. That seems to be the reason for the requirement of a declaration that there be some very precise delineation of what has been found in such a form as can be used for such claims in other proceedings by other persons. Particularly with that background in mind, we would submit that the declaration provision should be seen only as a gateway to the making of other orders and not of itself as intended to operate as a punishment.

GUMMOW J: The section of the Trade Practices Act is not expressed to be at large, is it?

MR MACFARLAN: I cannot recall, your Honour.

GUMMOW J: No, it is not.

HEYDON J: It is only prima facie, for one thing.

GUMMOW J: Yes. Now, 1317F seems to be at large, “conclusive evidence” when, where? Would you not say, “for the purposes of Part 9.4B”? Would that not be the ordinary reading of it?

MR MACFARLAN: That would be the ordinary reading of it, your Honour. It seems to be intended to have some sort of in rem operation.

GUMMOW J: It is a qualification of 1317L, perhaps. It is certainly a qualification of what would otherwise be the rules of evidence, is it not, that apply under 1317L?

MR MACFARLAN: Yes, indeed. I wanted to say something about 1317L. Your Honours will see the use of the expression “civil penalty orders” in the heading. It is the heading to a section and it is therefore not part of the Act, but presumably it is part of the material that can be taken into account in construing the Act because it appears in the print of the Act.

GUMMOW J: Is this a federal law these days? It is, is it not?

MR MACFARLAN: It is, yes.

GUMMOW J: Well, you have to be fairly careful if you are reading 1317F too widely. This might be beyond power.

MR MACFARLAN: Yes.

GUMMOW J: It could be evidence of a dispute between the director and his wife.

MR MACFARLAN: Yes.

GUMMOW J: Or your probate case.

MR MACFARLAN: Your Honours, we would point out that 1317L purports only to a declaration of a pecuniary penalty order, but not to disqualification, and, seemingly, assuming that in proceedings for disqualification the civil procedure will apply in any event – and therefore assuming, we would submit, that it is not of a penal character.

GLEESON CJ: Can ASIC only get an order for compensation if there has been a declaration of a contravention?

MR MACFARLAN: I do not think a declaration as such is necessary, your Honour, but certainly the concept of contravention is there as a precondition.

GLEESON CJ: What prompted my question was section 1317M, which seems to provide that if you, as it were, prosecute and get a criminal conviction, that is an end to the operation of certain of the civil penalty provisions.

MR MACFARLAN: Yes. The fact that M and L do not refer to a disqualification order, we submit, is of some relevance on the question of construction as to the way in which the legislature was regarding the making of a disqualification order.

Finally, in relation to the matter of declarations, your Honours, a finding of contravention, we submit, is not enough to make proceedings penal, be they what happens under the Trade Practices Act with actions for damages, which require proof of contraventions, and the fact that the statute here formalises the making of a declaration for an evident purpose of ensuring that it is clear what the conclusive evidence provision is applying to – that is, a finding in the form of a declaration that spells out with some specificity what has been found and in what circumstances. In those circumstances, we submit that the declaration is not to be regarded as a penal order. For those reasons, generally, we submit, your Honours, that the appeal should be dismissed.

KIRBY J: You filed no notice of contention. You are content to leave it on the basis that the majority did not have to deal with it and Justice McColl who did found against you on that point.

MR MACFARLAN: We do not press any notice of contention. We do not pursue any notice of contention, your Honour.

KIRBY J: What is the actual notice of appeal? It is not in the application book. Is it to be taken as the draft notice that was - - -

MR MACFARLAN: We have one, your Honour, that bears the Court stamp.

GLEESON CJ: In the supplementary appeal book at page 36.

McHUGH J: It is at page 89 of the supplementary book.

KIRBY J: When I said we do not have that explanatory memorandum, it was not in the document that you sent up, as I understand it.

MR MACFARLAN: There was one distributed before the Court convened this morning, your Honour.

KIRBY J: I see, and it is in that one, is it?

MR MACFARLAN: It should be, yes. If the Court pleases.

GLEESON CJ: Thank you, Mr Macfarlan. Yes, Mr Walker.

MR WALKER: Your Honours, may I turn directly to the schema of these provisions to which my learned friend has been referring, and starting immediately with a matter raised by your Honour the Chief Justice, is a declaration of contravention necessary before there can be a compensation order, the answer is yes. If one started with 1317H all one would observe is that the precondition for an order of compensation is that the person has contravened a civil penalty provision, et cetera. However, when one goes to 1317E, there is as I commenced my address in-chief, an obligation on the court to make a declaration of contravention if the court is satisfied that a person has contravened one of the following provisions, namely the civil penalty provisions.

HAYNE J: But the answer you have just proffered must, must it not, take account of 1317J, a possibility that compensation orders can be sought by, for example, a corporation and only ASIC can apply for declaration of contravention.

MR WALKER: Yes. Your Honour anticipates me. That is why, for example, an obvious use – not the only – of 1317F is to permit – after ASIC has sought and gained a declaration of contravention and whatever else it seeks but not compensation, for the corporation to use that conclusive evidence in order to gain compensation. But a court satisfied of the contravention of a civil penalty provision must make a declaration. The only person who may move for such a declaration is ASIC and that is why there may be two proceedings in succession at the suit of different persons. That is the first point we wish to make about the - - -

GUMMOW J: Wait a minute. You are saying - - -

MR WALKER: Section 1317J(1) permits ASIC to apply for a declaration of contravention. Subsection (4) of that provision makes permission exclusive of all others. The corporation relevantly may apply for a compensation order, subsection (2), but not for a declaration. A compensation order, 1317H, may be made only if there has been a contravention of a provision which, by reason of 1317E, must involve the court making a declaration. It could have been done perhaps in one provision but it was not, but those provisions interlock so that there is only one person who can seek the declaration which is obligatory if there is a finding of contravention and a finding of contravention is itself a prerequisite to compensation.

GUMMOW J: So take an application under 1317J(2).

MR WALKER: Yes. That could only come after there has been a declaration to which effect would be given in those proceedings under 1317F. It could only come that way because 1317H requires a court to be - - -

GUMMOW J: I am just thinking that is one application of 1317F, is it not?

MR WALKER: Yes, it is. I am not saying it is the only one but, if you can say anything is obvious in this scheme, it is one that emerges in that fashion.

HEYDON J: So you say that an application for a compensation order is an application for a penalty because of your argument about declaration of contravention?

MR WALKER: Partly. May I give – and I do not want to repeat what I said in-chief about it, but just in point form, it has the label – see section 9. Next, it comes as a consequence of a contravention of a civil penalty provision which must be accompanied by a brand, the declaration of contravention, and third, by reason of the perhaps odd provisions of section 1317H(2), though it is called compensation, it may be more than that. In other words, it is not limited by the restitutio in integrum principle of common law or equitable damages.

HEYDON J: It is a very extreme submission. It is rather damaging to what might be called the strongest parts of your submission.

MR WALKER: It is being put, and I cannot withdraw it, but it is certainly not essential to the success of our main argument.

HAYNE J: And it is a construction that appears to depend upon construing 1317E(1), “If a Court is satisfied . . . must make”, as engaged in every case in which the court reaches that state of satisfaction, whether or not it is an application of the suit of ASIC for declaration of contravention – a construction of the Act, I must tell you, which I had not lit upon on first reading the provisions. Perhaps it is right.

MR WALKER: Your Honour, it is certainly the case that 1317E and 1317J interact so as to make ASIC the only moving party for a declaration.

HAYNE J: It would be an odd result if the corporation seeking compensation must wait upon the budget of ASIC to institute its proceedings for declaration of contravention.

MR WALKER: That is for a compensation order under 1317H. Nothing prevents a general law or other statutory - - -

HAYNE J: I understand that, and thus that which the legislature gives through 1317H and J to a corporation is, on this branch of your submissions, very limited.

MR WALKER: May I say it is a good thing from the point of view of corporations that it is not the only way they can get true compensation, and it is not. It is a way which is a short way home in the - - -

HAYNE J: Short according to ASIC bringing the - - -

MR WALKER: Quite, your Honour, I accept that. However, the alacrity or priorities or strategy of the regulator, which will vary from time to time, will not affect the meaning of these provisions and certainly does not affect whether one would characterise the consequences of disqualification as penal or not.

In relation to what Justice Heydon was asking me, as we made clear in our address in-chief, just as not all disqualifications are penal - I do not need to elaborate that - neither is it necessary for our argument which is about disqualification, neither is it essential that everything which is defined as a civil penalty order in section 9 be, according to the general law, penal. I accept the strictures or the warning that your Honour utters in relation to the relative strength of the argument, however, the third element is one which does require to be taken into account.

The compensation order is called a compensation order, but by section 1317H(2) it is clear that it may go over the limit of restitutio in integrum. May I draw, in particular, attention to the fact that the profits which are to be included – and this is what that provision that is expressed in imperative mood - in determining the damage suffered, include profits made by any person, not just by the contravener, resulting from the contravention or the offence. Now, that means that both the concept of damage suffered and the notion of compensation by order has been pushed, by the lexicon of the provision itself, beyond what the general law would accord to either damage or compensation.

For those reasons and for similar reasons as I have referred to in Gray, these are orders which are penal in nature because they go beyond. They are not just disgorging the contravener’s own profits, and this is not discretionary, it is imperative, include its profits made – it has to be by more than one person - by any person. So that is an essential part of my answer to your Honour’s question.

CALLINAN J: There would have to be profits by reason of the contravention.

MR WALKER: It says resulting from the contravention.

CALLINAN J: Well, why could you not get it under an ordinary common law action that would have resulted from the contravention.

MR WALKER: It would not be necessarily compensation or damage suffered if it was a profit that could never have been made by the corporation, for example.

GLEESON CJ: Just a minute. It was a breach of fiduciary duty.

MR WALKER: But that would not be compensation, your Honour.

GLEESON CJ: No, exactly. It would be disgorging a profit.

MR WALKER: Quite so, and it is that distinction upon which I rely in arguing that section 1317H(2) means that, notwithstanding the statutory label “compensation” – and I realise I am trying to have labels both ways here – as a matter of substance, this is an order which is not limited by restitutio in integrum. That was the next point I wanted to make about the compensation.

Could I then take your Honours, please, to the provisions of 1317K and 1317L to which some reference was made. The first is a time limit which selects declaration of contravention, pecuniary penalty order and compensation order as those which are limited. The second selects declaration of contravention and pecuniary penalty order as those to which the rules of evidence and procedure for civil matters are to apply. However, there is none of the significance given by my learned friend to that in relation to characterising disqualifications of penalty for the obvious reason already contained in the schema to which reference has been made, namely, that the declaration of contravention is the pivotal gateway through which, among other things, the disqualification order must pass. It proves entirely the contravention and in relation to the liability for contravention one has, of course, the provisions already referred to of 1317S.

In relation to 1317S, we have supplied to the Court copies of the defence which was the defence to the pleading which was before the Court of Appeal. I do not want to take your Honours to any part of that pleading, but I would simply note that there is a pleading in paragraph 61 of Mr Rich’s defence which may bear consideration in relation to 1317S. It is not a point that plays any part in my argument concerning penalty.

Could I then next draw attention to the relationship between civil and criminal proceedings that one finds in 1317M and 1317N. Again, the fact that a declaration of contravention appears in each of those means that the essential prerequisite to disqualification is caught up in a relationship between civil and criminal proceedings of a kind which, in our submission, shows that where the conduct is the same – to put it broadly – then the relationship between the criminal and civil proceedings for a declaration of contravention reinforces, as a matter of the policy of this part of the Act, the purpose, which is penal, which we attribute to the disqualification order. I should have added in that last argument 1317P as well.

Section 1317R is of perhaps tangential significance. Your Honours will have noted that under, for example, 1317R(2)(a), the assistance is required to be given by somebody other than the person who may have contravened a civil penalty provision, and that, in our submission, reinforces that it is not to be supposed that one would see, for judicial proceedings, any abrogation or non-application of the penalty privilege.

Your Honour Justice Kirby and your Honour Justice Callinan asked my friend about section 68 of the ASIC Act and it has been raised, in particular, I think by Justice Gummow and the Chief Justice in relation to Kippe’s Case. It bears a family resemblance, obviously enough, to section 597 of the Corporations Act. In each of those it is clear from the provisions which have been considered, for example, in Kippe’s Case and which appear in section 597(12) that it is intended to preserve penalty privilege for judicial proceedings. It is intended to.

GUMMOW J: Wait a minute. Section 597(12A)(d), where it says:

a proceeding for the imposition of a penalty - - -

MR WALKER: That is right, so it is subsection (12) and subsection (12A).

GUMMOW J: There is a question, I suppose. It must include at least that which the Act calls a penalty proceeding.

MR WALKER: Yes.

GUMMOW J: It may also extend to proceedings de hors the Act which answer that description under the general law.

MR WALKER: Yes, and we rely – for the latter, in particular, we draw in aid the word “incriminate”. It would be odd if that word, which surely involves all kind of crimination not just under the Act or according to language used in the Act, was calling in the general law but penalty provisions was not.

Now, the importance of those provisions is that it simply puts paid to any notion – and I think my learned friend has disavowed it in any event – that there is something about what I will call utility or expediency in the overall scheme for corporate regulation by sanctions on delinquent officers which would be defeated in some purposive fashion by recognising the privilege for which we argue. I do not think he does argue that, but certainly those provisions would - - -

KIRBY J: He embraced the Kippe point which comes close to that.

MR WALKER: I think he did not embrace the point that the Chief Justice had raised before the luncheon adjournment, your Honour.

KIRBY J: I thought when he came back he said that - - -

MR WALKER: It played no role, he said in his argument.

KIRBY J: I will look at the transcript. I understood him to say that he embraced the Kippe point.

MR WALKER: No. In any event, your Honour, those provisions to which I have drawn attention tell very powerfully – indeed, we would say conclusively – against it. It is to be observed of course that 68 and 597 speak in terms which Daniels perhaps renders otiose. They abolish the privilege for the out-of-court questioning. They do speak in relevant terms when it comes to tendering the evidence in judicial proceedings, but that in no way weakens the textual support which they give to our argument.

KIRBY J: Could I ask you this. In Daniels I was at least affected by Lord Hobhouse’s speech in Morgan Grenfell and the point he made that where Parliament wishes to remove standard privileges, it has to take the responsibility and accountability and spell it out. I realise that each side before us now, through three levels of the court hierarchy, have said when you look at it, it is clear. But how, if Parliament had wanted to make it clear beyond any doubt, taking the responsibility for that decision, could it have expressed the principle here to put it beyond doubt, as Morgan Grenfell suggests it should be done?

MR WALKER: In a provision in or near 1317L, they could have made it clear, by words of exclusion, that there was not to be any penalty privilege.

KIRBY J: You would have to spell it out in a bit more than that.

MR WALKER: I am sorry, your Honour. Your Honour is asking me to draft a provision. It would - - -

KIRBY J: Just something of the order of what would be said, without using “penalty privilege”, because that is a - - -

MR WALKER: Well, “penalty privilege” is not an expression probably that has been seen in the statute, but one has 597 and 68, which refers to answers that might tend to make the person liable to a penalty, and you could have a provision - this would abolish it - that says that the rules and procedure would apply apart from anything which would privilege or excuse a person from answering questions, producing documents or complying with directions of court that might tend to make them liable to a penalty.

KIRBY J: Or you could say something to the effect that the provisions of the specified sections are not to be taken as constituting a penalty for this purpose.

MR WALKER: One could deem it, though that may not be as straightforward as simply saying it is a penalty and you have to answer. It is a privilege that is, of course, susceptible to legislative abrogation - - -

KIRBY J: It is just that Justice Austin, the Court of Appeal with the dissent, and this Court, have now spent several days trying to work out how the Act is intended to operate and that is exactly what Morgan Grenfell said should not be done where an established privilege is involved.

MR WALKER: But that, of course, conduces to our success in the argument, yes. Your Honours, in relation to 206D and 206F, without repeating what I have put in-chief about it, in answer to our learned friends, it is critical that those are provisions that do not require contraventions to have been proved. It is in that way that they are not penal. We do not argue they were penal, we argue they are not penal. They are examples of disqualifications that are not penal. Contrast 206E(1)(a)(ii) which is about contravention, and therefore is penal.

My learned friend calls in aid the fact that other conduct in other corporations can be taken into account in considering whether it is justified to make a disqualification order as rendering the possibility of such a civil penalty order being made, not penal according to general law.

In our submission, it is bordering on the perverse to say, when you already have somebody upon whom a consequence is to be visited because they have done the wrong thing, that the consequence may the more readily be visited upon them because other episodes also demonstrate unfitness to remain in the office removal from which is the consequence in question. In our submission, that strengthens, rather than weakens, the characterisation of the matter as penal. In particular, it exposes one to a scrutiny of conduct that may not have been criminal, or, if prosecuted, may not have been contravention of any provision, or whether litigated, but which is now to be looked at because you have done the wrong thing – see the declaration of contravention.

My learned friend said of 201B, the age limit of 18 involves some presumption of fitness. In our submission, nothing whatever can be gained from those bare provisions about a presumption of fitness, except by the most Pollyanna view of human nature upon reaching the age of 18.

As to the foreign conviction point upon which he relied in paragraph 206B(1)(c), our short answer is that, like a conviction locally, a foreign conviction can be taken as being an indication that somebody has done the wrong thing. The possibility that one may be disqualified for that in no way casts an adverse light on the possibility that disqualification under 206C is penal.

In relation to Smith v Read, the relevant point for present purposes of the reference to bastardry or alienship is that they, of course, are qualities or characters quite beyond the conduct of the person in question to have effected. The person in question does not bring about either of them. They are both, literally, in relation to birth. For those reasons, his Lordship was distinguishing between consequences visited as a penalty for what you have done and consequences visited as a rule of law because of what you are. That in no way weakens the submissions upon which we rely.

GLEESON CJ: Well, the most obvious form of disability – and disability visited by law is a kind of penalty – is infancy.

MR WALKER: Yes. The other one is such advanced senility as no longer to be sui juris.

GLEESON CJ: Yes, but if the reason why you cannot acquire property by contract is that you are an infant, that is one form of disability. If the reason why you cannot acquire property by contract is that you are an adherent of a certain religion - - -

MR WALKER: Or traded with the enemy.

GLEESON CJ: - - - that has, in the past, been called a penalty.

MR WALKER: Yes, and that is the point, in our submission, that his Lordship was making in that passage from Smith v Read. There were questions asked about the possibility of a pecuniary penalty being sought in these proceedings. The position may not be simply as clear as statements by ASIC’s current counsel from the Bar table saying, “No”. It is a question as to whether it would be possible or not. I have referred to it already. I will not repeat the submissions about the provisions and the way in which they may follow.

Can I note that Justice Austin in the application book, page 28, paragraph 72 took a somewhat different approach, merely noting that the prospect of amending in these proceedings to claim a pecuniary penalty would be slight indeed, if there had been compliance with the directions to which we were expressing resistance on the basis of the privilege.

HEYDON J: You would agree, would you not, that in view of what Mr Macfarlan said, it is not now possible for him to seek a penalty against your client – a pecuniary penalty?

MR WALKER: May I distinguish between that which would be proper and that which may in law be competent. The former, yes; the latter, I am not sure whether there is an absolute bar, your Honour, I am sorry.

HEYDON J: For someone like Mr Macfarlane to say something like that to a court - - -

MR WALKER: It is unimaginable that anybody would do anything to embarrass him by showing those words not to have been effective, yes. That is a confident prediction as to the conduct of agencies, but that does not amount to a preclusive bar in law.

HEYDON J: With ostensible authority, that he spoke on instructions. He said - - -

MR WALKER: Yes, but we are not making a deal at the Bar table, your Honour.

HEYDON J: Does it not reduce, though, to well below any appreciable level of risk – I mean, the claim for privilege against self-incrimination or privilege against a penalty must not be merely theoretical. There has to be some appreciable risk of the apprehended consequence happening.

MR WALKER: It has to be something real enough for the court to take account of it. Of course, when, historically, the question whether the plea could be met by the grant of a pardon or an immunity, when that first arose, one of the very difficulties to be dealt with was whether or not the privilege was still available because the words to be extracted from you would bring you into infamy because, though you would never be convicted for it, you would still confess that you were a Catholic, or in another time, a Protestant.

GLEESON CJ: But we can, I think, assume quite safely that Mr Macfarlan is not going to go back and try to amend his statement of claim and include a claim for a fine.

MR WALKER: You can, in short, assume all of that. Given the compensation order he seeks, one would wonder why, apart from simply going into different coffers, one would bother. Your Honours, in relation to La Macchia’s Case 72 ALR 23 at 26, the passage to which my learned friend took you, carries on in that paragraph in Justice Toohey’s reasons to say that:

Cancellation is not part of the penalty a Court of Petty Sessions may impose. It is part of the scheme of the Act –

There was there some attention being paid to the mechanism provided by which for wrongdoing there was a disciplinary or regulatory scheme including penalties, and then outside of that, there was an administrative act being taken. In any event, we rely upon what we have put in written submissions concerning licensing schemes. Nothing concerning the ability to become the director of a corporation bears true resemblance to a licensing scheme.

CALLINAN J: It looked rather like a penalty to me anyway, I must say, Mr Walker.

MR WALKER: Thank you, your Honour.

CALLINAN J: Could not fish, the licence was taken away.

MR WALKER: Justice French did not, in his reasoning, find it necessary to refer to any such proposition. Of course, the case was not a case about privilege at all. It was a case about a canon of - - -

GUMMOW J: Retrospectivity.

MR WALKER: - - - statutory interpretation and retrospectivity in which the epithet - opprobrious one gathers - “penal” was being used to enhance a retrospectivity argument.

KIRBY J: But as I recollect the academic articles that I referred to earlier which we looked at in Daniels, the point that was being made was that some of this old law that perhaps developed in the time of penalties on Protestants and Roman Catholics is not really so apt to a modern economy and community in which there is a very complicated and very substantial statute with a very important public purpose, which is to protect the community, and that, therefore, you cannot just pick these old principles up and translate them into a modern regulatory network of laws for the protection of the public.

MR WALKER: May I answer that in this fashion. One, it has to be a current understanding of the rule or principle with a current rationale. Two, it would be contrary to this Court’s approach to disdain history. Three, however, selectivity or selection has always been practised, not only in this Court or in the last century, but before then, in relation to those reasons which appear to later generations more or less compelling from historical record - - -

KIRBY J: It is not a matter of disdaining history so much as reading it with a sceptical eye in circumstances of huge regulation of a major economy, the most important economy for us in Australia, and the protection of the investing public in it.

MR WALKER: Your Honour, with respect, nothing huger or more pervasive could be imagined than the pretended control of what people thought about God. One of the major objections to the ex officio oath was that you would be examining me about what I think secretly. So that was pervasive; it covered everyone, every minute of their waking life. The pervasiveness of the regulatory scheme – in that case, religious tests, in this case, corporate regulation – is no reason, indeed to the contrary, to count out a privilege against exposing yourself to a penalty.

CALLINAN J: The history is very important to the argument, for example, based on 597.

MR WALKER: Yes, and that is the next point I am coming to - - -

CALLINAN J: Here is the legislature and the great weight of historical authority, elaborate provisions, but nothing abrogating in any way this ancient privilege.

MR WALKER: Yes, 597 and 68 are the last part of my answer to Justice Kirby, and they are, with respect – it is to the effect of what Justice Callinan has just noted. Yes, there is a complex, Byzantine even, scheme for the regulation of an economy so much more sophisticated than Tudor times that it does not matter, but 68 and 597 recognise in terms, using words which would not be understandable except by resort to history, which abrogate extrajudicially and preserve judicially this very privilege, which puts paid to the notion that there is something about modernity or sophistication or complexity which ought to destroy the very existence of the privilege.

That is why, in paragraph 1 of our written reply, and when I stood up this morning, I pointed out that there is no issue in this case about the existence of the privilege. That is not argued. The only question is whether the consequences sought to be visited upon my clients in these proceedings are such as to be described as penalties or in the nature of penalties so that the application of the privilege follows.

KIRBY J: But that puts you clearly and squarely in the corporate regulation world, as distinct from in the general world of privilege to which some of the older law relates.

MR WALKER: They are all – as the examples show, they are all themselves examples of highly special, some of them quite odd, areas of human endeavour. Nonetheless, the privilege has been held, time and time and time again, to apply. Nothing in Daniels doubts the existence of the privilege, notwithstanding the removal of the doubt - - -

KIRBY J: It does result in an ironic tender concern for a large corporation as in Daniels or for your client in this case - - -

MR WALKER: My client is not a large corporation.

KIRBY J: - - - no, I realise that – which has not always been shown to other groups.

MR WALKER: Well, your Honours, we would call in aid a principle which has been established as much for the weak and cowering as for the powerful, and the powerful are as entitled to call it an aid, none of which, of course, involves the proposition that my clients are powerful.

ASC v Kippe [1996] FCA 517; (1996) 67 FCR 499, could I simply draw to attention, in answer to the way in which my learned friend employed it, at 507B there are there references to those very authorities – what might be called the sentencing and professional authorities – which we have distinguished as being in a different area of discourse, but it would appear that that was an important part of the reasoning of the Full Court in Kippe. That is one way of saying that they were wrong, they should not have used those cases in that fashion.

On page 506E to F there is a reference to the objectives of the Act that the Full Court was there construing. Of course the objects of the ASIC Act as they now stand include those contained in paragraph 1(2)(g):

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.

The enforcement of standards by the imposition of sanctions, in our submission, would have fitted there. Their Honours did not refer to that. On page 508A to B the reasoning involves the assertion that:

the making of such an order is not designed to punish or impose a penalty –

That, of course, is the inquiry at hand. It goes on to include the observation that:

the existence of conduct which may justify a banning order does not itself give rise to an offence.

That is not an answer in relation to penalty. For those reasons, the reasoning is weak and ought not to be followed. Then in the same page, 508, B to D, there is a reference to what their Honours called “standard non-blameworthy grounds”, a matter which, in our submission, entirely distinguishes their reasoning from the present case and would render their reasoning wrong. If the fact that one could be disqualified, say, for a standard non-blameworthy ground such as senility was to be treated as a reason for treating disqualification for wrongdoing as non-penal.

GLEESON CJ: What do the examination provisions of the legislation with which we are concerned have to say about claims for privilege by a person being examined?

MR WALKER: Can I take you to 597. They very explicitly say that they are abrogated for extrajudicial, and that the result of that cannot be used judicially.

GLEESON CJ: That is what I thought. It occurred to me that if you were looking for a precedent for a form of statutory abrogation of privilege, you would find it in the provisions of the Act relating to examination of company officers.

MR WALKER: Yes. What has come to be called, not always accurately, “use immunity” and provisions of that kind, are the kind of provisions that one would expect to see and which one does see in 597 where the provisions of subsection (12) prevent what is otherwise an excuse – subsection (11) – from including self-incrimination or tendency to make the person liable to a penalty, and that is extrajudicial. Then we come to the question of judicial proceedings, a criminal proceeding or a proceeding for the imposition of a penalty. The answers are not admissible in evidence, except in certain cases to do with the falsity of answers.

GLEESON CJ: Yes, I recollect that there was a time – maybe it still goes on – when people who are being examined would often make a claim for privilege, question by question, and they would then have to go ahead and answer the question.

MR WALKER: That is right, that is still the case. As one will see from paragraph 597(12A)(a):

Where:

(a) before answering a question put to a person . . . at an examination, the person claims that the answer might –

et cetera, and your Honour will no doubt recall the tedium was sought to be abbreviated in some cases - - -

GLEESON CJ: By saying privilege.

MR WALKER: - - - by simply parroting – I should not say parroting – by simply saying privilege, and the one function of counsel was to wake up and glower if that word was ever omitted.

GLEESON CJ: Yes, I remember that.

MR WALKER: May it please your Honours.

KIRBY J: Just a small point relating to costs. There seems to be a nuance in the orders that you sought at page 37 in your application to the Court of Appeal. You ask for the setting aside of Justice Austin’s orders of 30 April on page 90 in your appeal to this Court. You do not seem to seek the setting aside of his Honour’s orders as to costs, because we could not substitute any other orders in the event that you were to succeed in respect of those costs. Do you ask for the costs before Justice Austin, or not?

MR WALKER: I think prayer 6 in our notice of appeal - - -

KIRBY J: I realise that, but you have not asked for the setting aside of the orders of Justice Austin as to costs. You have only asked for the setting aside of the orders - - -

MR WALKER: I will just check as to whether there were in fact orders made, your Honour.

KIRBY J: - - - as to the giving of discovery and the serving of affidavit evidence.

HAYNE J: Application book page 30:

The Plaintiff’s costs of its application filed on 10 February 2003 be the Plaintiff’s costs in the proceedings.

Do you seek to vary that?

MR WALKER: Yes, we do need to supplement our notice of appeal by setting aside that order for costs.

KIRBY J: It seemed to me – I may be wrong, but the logic of your argument was that you should not have been put to this travail at any level of the hierarchy. I may be wrong.

MR WALKER: Yes, your Honour, is right, not wrong. In our notice of appeal, we would ask to be understood prayer 6 as being an artless way of asking for that costs order to be set aside as well, and substituted by the costs order that we ask for in prayer 6.

GUMMOW J: The costs order you seek is what?

MR WALKER: I am sorry, your Honour. The costs order is sought at page 90 of the supplementary book, prayer 6. There is a compendious order for costs in this Court, the Court of Appeal and before Justice Austin.

GUMMOW J: Now, this motion filed 10 February 2003, what was that?

MR WALKER: That was for discovery and directions for evidence.

GUMMOW J: Is that in this Court?

MR WALKER: That may be asking too much, your Honour, but - - -

GUMMOW J: No.

MR WALKER: I think your Honour is asking me, is the originating process in Court? The actual document is not.

GLEESON CJ: All right, thank you.

MR WALKER: May it please your Honours.

GLEESON CJ: We will adjourn for a short time to consider the course we will take in this matter.

AT 3.35 PM SHORT ADJOURNMENT

UPON RESUMING AT 3.40 PM:

GLEESON CJ: In this matter at least a majority of the Court is of the opinion that orders should be made in the following terms:

1. Appeal allowed with costs.

2. Set aside the orders of the Court of Appeal made on 26 November 2003 and in their place order:

(i) appeal allowed with costs;

(ii) set aside paragraphs 1, 2 and 3 of the order of Austin J made on 30 April 2003 and paragraphs 1, 4, 5 and 6 of the order of Austin J made on 7 October 2003 and in their place order that the plaintiff’s application for discovery is dismissed with costs.

We will give our reasons for those orders in due course.

AT 3.42 PM THE MATTER WAS CONCLUDED