Rich & Anor v ASIC [2004] HCATrans 90 (2 April 2004)

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Rich & Anor v ASIC [2004] HCATrans 90 (2 April 2004)

Last Updated: 5 April 2004

[2004] HCATrans 090

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S612 of 2003

B e t w e e n -

JOHN DAVID RICH

First Applicant

MARK ALAN SILBERMANN

Second Applicant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 APRIL 2004, AT 9.30 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friend, MR D.L. WILLIAMS, SC, for the applicants. (instructed by Joanne Kelly Solicitor)

MR R.B.S. MACFARLAN, QC: If the Court pleases, I appear with my learned friend, MR J.P.A. DURACK, for the respondent. (instructed by Australian Securities and Investments Commission)

GLEESON CJ: Yes, Mr Walker.

MR WALKER: Your Honours, this is a case where the division of opinion in the Court of Appeal poses, in our submission, against the cogent reasons and clear conclusion of Justice McColl some very careful and balanced considerations, with great respect, which are contained, in particular, in the reasons of the Chief Justice. May I take your Honours immediately to the passage commencing at page 69 of the application book.

GLEESON CJ: Mr Walker, I think we understand the issue that is at stake and the significance of it, but what is the position with respect to the pending litigation? In other words, is this point moot or going to become moot?

MR WALKER: It is fixed for hearing.

GUMMOW J: It is 5 July, is it not?

MR WALKER: Yes, 5 July, hence the expedition application. Were we to obtain special leave, there would undoubtedly be discussions between the parties and, in default of a modus vivendi emerging from those discussions, there would no doubt be an application.

GLEESON CJ: To the hearing judge to vacate the date or - - -

MR WALKER: Or something which would mean that our rights at stake in the appeal could not be rendered nugatory by what I will call the simple conduct of business according to a calendar in the Supreme Court.

GLEESON CJ: This issue actually affects not only the question of discovery, but also affects the conduct of the litigation, does it not?

MR WALKER: Yes.

GLEESON CJ: In particular, to put it bluntly, whether the defendant is going to be called upon to announce his defence or inform the other side of his defence at the beginning of the hearing or even before the hearing.

MR WALKER: Equally bluntly, yes. Your Honour, in practice these matters in the past have been, for example, reflected – that is, the appreciation of the privilege has been reflected, for example, in at least one similarly important and large-scale case by an arrangement in advance that if there were to be evidence called from a defendant, that would, of course, be announced only at the close of the plaintiff’s case and there may or may not be, according to the nature of circumstances as they then obtained, a short adjournment for the assembly of evidence-in-chief in writing.

GUMMOW J: The estimate is three months, is it not?

MR WALKER: Of this hearing, yes, your Honour. In other words, there is no shying away from the fact that a major piece of litigation has been fixed and would be affected by an appeal, a point that we have taken, of course, from the very beginning in terms of this - - -

GLEESON CJ: We are looking at it from a slightly different point of view, and that is we want to ensure that if we grant special leave in this case and then take the case on board, it is not going to be moot.

MR WALKER: No. We have no reason to believe it moot. We have no reason whatever to suppose that the plaintiff would be seeking to render it moot by any action it took and we would certainly, of course, be making, we submit, a powerful argument to the trial court to avoid doing anything which would render moot an argument about such a fundamental question.

GLEESON CJ: There is another problem that I take to be raised by your opponent which involves a suggestion that this issue only arises because of the rather unusual circumstance that this is a case in which there is an application for an order for disqualification but no application for a civil penalty, presumably because there is such a large claim for compensation. There seems to be a suggestion made by your opponents that this really is not a matter of wide importance.

MR WALKER: Your Honour, it remains to be seen over a course of years, which could be quite long into the future, as to whether this is going to be rare or, rather, in the context of extremely large capitalist endeavours and their occasional failures, whether this will become de rigueur in the sense that orders in the nature of a fine – your Honour refers to a civil penalty but that is an ambiguous expression in this argument – can readily be seen to pale into insignificance compared to personal liability of a compensatory kind in large capitalist collapses. Your Honours will appreciate that it is for those reasons that for our opponents, in particular, to posit that this will be rare is a quite impossible prediction and, one would have thought, somewhat against the nature of their mission.

In our submission, that is a highly dangerous factor upon which the Court would allow unexamined the analysis by which disqualification, with everything that carries in terms of financial, personal and branding consequences for someone, to be dubbed in the statute a civil penalty but treated by the common law of privilege as not at all penal in nature. In our submission, one could not possibly regard as a strong foundation for the decision of leave in this case the suggestion – it can be no more than that – that this combination of circumstances by which an order in the nature of a fine is not sought ought to be seen as somewhat anomalous. It is not in the nature of things anomalous at all; it is a perfectly sensible response by the Commission.

GLEESON CJ: The case has been conducted on the basis, has it, that if the Commission had been seeking a fine, the consequences for which you contend would follow?

MR WALKER: Yes. Whether that gives rise to questions of tactical decision-making probably does not matter, but it certainly casts real doubt about the cogency of any argument against special leave – and I stress against special leave – on the basis that it happens to be a case where an order in the nature of a fine is not sought.

GUMMOW J: If leave were granted, would an issue come up here about witness statements?

MR WALKER: No. When your Honour says “an issue” - - -

GUMMOW J: There seems to be some difference of opinion between the State courts.

MR WALKER: We think that is moot by reason of the position which has been - - -

GUMMOW J: What has already happened?

MR WALKER: - - - taken by the Commission.

GUMMOW J: Yes, thank you.

GLEESON CJ: We might hear what Mr Macfarlan has to say.

MR WALKER: May it please your Honours.

MR MACFARLAN: Your Honours, in our submission, the applicants do not have sufficient prospects of success on an appeal to warrant a grant of special leave. The factor that appeared to be crucial in the mind of the dissenting judge was and is the fact that it is a precondition to the making of a disqualification order under section 206C that there be a declaration of a contravention of a civil penalty provision. We submit that matter cannot be of any particular significance because once a contravention is shown, a variety of orders may be made, some of which may be punitive in nature, such as a pecuniary penalty, and some not.

One can see it by reference to section 9 of the Act which has a definition of “civil penalty order”. If your Honours wish to look at that, it is in the volume of material under the first tab. There is a long definition section. The number of the page is 7 of 48 on the top right-hand corner:

“civil penalty order” means any of the following:

(a) a declaration of contravention . . .

(b) a pecuniary penalty . . .

(c) a compensation order . . .

(d) an order under section 206C disqualifying a person –

We would submit that clearly a compensation order could not be regarded as punitive. The effect of that definition, and indeed the structure of the legislation as a whole, is that the term “civil penalty order” is just a convenient mode of identifying the precondition to various orders that might be made. It is not an indication that all orders made as a result of that precondition being satisfied are necessarily punitive.

Your Honours, reference to the Trade Practices Act illustrates the point. As your Honours will recall, section 82 of the Trade Practices Act enables damages to be awarded where there has been a contravention of section 52 of the Trade Practices Act. It could not be suggested, we would respectfully submit, that a claim for damages under section 82 is of a punitive nature simply because it is a precondition that a contravention be established. Likewise, in the case which was much referred to in the judgments below, Refrigerated Express, the decision of Justice Deane, he was dealing with an injunction in relation to a breach of Part 4 of the Act. His finding was that that claim for an injunction was not a claim for an order of a penal nature.

GLEESON CJ: Did this question not arise in a case of tradestock that went on for a long time before Justice Franki?

MR MACFARLAN: I remember the case, your Honour; not this point arising.

GLEESON CJ: I thought that was the case in which there was a question of whether there was some contempt of court arising out of a notice that was issued requiring the provision of information.

MR MACFARLAN: The reference has thus far escaped all those concerned in this case, your Honour, if it did, in fact, arise there. The point we would seek to make is the fact that it is a precondition that there be a contravention is not of itself an indication that the order sought is punitive. Another example would be the case of legal practitioners. In most cases a precondition to disbarment is a finding - - -

GUMMOW J: Yes, but that is a forfeiture.

GLEESON CJ: And it is complicated by the fact that they have obligations of disclosure to the court and to their professional association.

MR MACFARLAN: I do not suggest the analogy is complete, but we submit that there is some analogy to this extent, that a precondition is in most cases a finding of professional misconduct, yet the order for disbarment, as has been recently confirmed by this Court, is regarded as not penal in character.

GLEESON CJ: You may ultimately be right on the merits of this argument, Mr Macfarlan, but there does seem to be a substantial issue of principle involved. What do you say about this question of the significance, if any, of the pending hearing?

MR MACFARLAN: Your Honour, if special leave were granted, we would see it as inevitable that the hearing at first instance be adjourned pending the determination of this Court on the appeal, because to proceed in the face of the matter being before this Court to receive from the defendants below their witness statements and discovery would cast a doubt as to the efficacy of the trial.

GLEESON CJ: Suppose we were able to hear the appeal on 22 April.

MR MACFARLAN: Your Honour, that would be something we would embrace, apart from our personal convenience.

GLEESON CJ: ....about cases when a case has fallen out of the list on that day.

MR MACFARLAN: We are very anxious to retain the date at first instance and I would expect my instructions would be that if the Court can offer such a date, then we would be happy to take it.

GLEESON CJ: Anyway, you go ahead and say what else you wanted to say.

MR MACFARLAN: Your Honours, where we go in the argument then is to say that because the mere fact of a contravention being a precondition is not of assistance, one has to look elsewhere. One can look to two places. One is here the long line of authority, albeit decided in a somewhat different context, but nevertheless speaking of disqualifications such as this and describing them as protective rather than punitive. It was in the context of those judicial statements that the legislation has come into its present form.

The other important matter is the context in which section 206C appears, namely, in Part 2D.6, which, as the Chief Justice said, is an integrated set of provisions. We would submit that it would be surprising if the character of the order made varied depending upon the particular section of the part which was invoked.

GUMMOW J: You first have to meet, I suppose, what Justice McColl says at paragraphs 344 and following about the unsatisfactory nature of this dichotomy which you assume and then develop by reference to the statute. This privilege came out of the notion of penalty and forfeiture, which by no means is limited to criminal law.

MR MACFARLAN: No, indeed. If these statements made by the courts over a period of some 25 years concerning the nature of these provisions are correct - - -

GUMMOW J: That is what we would have to look at, I suppose.

MR MACFARLAN: Yes. If they are correct, then this is a protective character and we would submit it is difficult to imagine - - -

GUMMOW J: It could be both; that is the problem.

MR MACFARLAN: It is possible, your Honour, yes.

GUMMOW J: I do not deny that.

MR MACFARLAN: It is difficult to imagine, we would suggest, a judge having found a contravention and having punished the defendant by imposition of a penalty, then deciding that by way of punishment the defendant should be disqualified irrespective of any finding that the judge might make as to the fitness of the defendant to be a director. If the judge found that there was no prospect of repetition, the defendant was a fit person to be a director, we would submit that it would be surprising if the judge were then able to proceed to impose disqualification by way of punishment.

One particular provision of Part 2D.6 which is of significance, your Honours, is that which enables the Court to consider any conduct of the defendant when deciding whether or not to disqualify him. That applies to each of the provisions within Part 2D.6 but, in particular, it applies to section 206C.

GUMMOW J: Do any of the sections of which there is alleged contravention require proof of purpose?

MR MACFARLAN: Alleged in this case, your Honour?

GUMMOW J: Yes.

MR MACFARLAN: No, your Honour. The only provision of which contravention is alleged is the provision concerning lack of care and diligence. Another strong indication, we would submit, in the part that the purpose of the disqualification provisions is protective is the fact that disqualification may occur as a result of breach of foreign laws. It cannot be supposed that the Court here would be setting out to punish a defendant here for a breach found in a foreign country of a foreign law. There are a number of such considerations and we submit they are compelling. They are referred to in the judgment of the Chief Justice.

Ultimately, your Honours, what it comes down to, we submit, is the fact that this application is concerned with the construction of particular statutory provisions – indeed, the Corporations Act in the particular form in which it now finds itself. One cannot generalise as to whether loss of office or disqualification or disbarment, any of those related matters, are or are not penal. One has to consider in detail the particular legislative provisions and the context in which they arise. The decision of Chu v Minister for Immigration of this Court makes that point when it speaks about detention. If it is for the purpose of deportation, then it will not be penal, whereas if detention is for another purpose, it may be.

It is a matter of the particular context and we submit there is no sufficiently general point which arises which would warrant the grant of leave. Additionally, the matter has not previously arisen. It is not therefore a case in which this Court has to resolve a conflict between authorities below. As to whether it will arise again in the future, one can only speculate. Finally, your Honours, it is essentially a matter of practice and
procedure, even though, of course, important to the parties concerned, and we would submit that in the absence of conflicting authorities, a matter of practice and procedure would ordinarily be left by this Court to the State court to resolve.

Finally, your Honours, we would make this point, that, as your Honours have heard, there is a very expensive trial looming and we would submit that your Honours should reject the special leave application on the grounds which we have put but not on the grounds that the application is premature. To reject it on the ground that the application was premature would leave the prospect of a vitiation of the trial at first instance.

GLEESON CJ: Yes, you would abort the proceedings.

MR MACFARLAN: Yes. Those are our submissions, your Honours.

GLEESON CJ: Thank you, Mr Macfarlan.

In this matter there will be a grant of special leave to appeal. Any matters relating to arrangements that might need to be made in connection with fixing a hearing date and matters preparatory to a hearing will be dealt with by Justice Gummow, who will sit at 2 o’clock this afternoon and junior counsel for both parties should be here before Justice Gummow at 2.00 pm when the question of fixing a date and taking any other necessary steps in preparation of the hearing can be attended to.

AT 9.53 AM THE MATTER WAS CONCLUDED