White v New Zealand Stock Exchange (No 2) [2001] NZCA 357; [2002] NZAR 342 (29 October 2001)

Last Updated: 10 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 61/01

	BETWEEN	JOHN ANDREW WHITE
		Appellant

	AND	THE NEW ZEALAND STOCK EXCHANGE
		Respondent

Hearing:	16 October 2001
Coram:	Richardson P Blanchard J McGrath J
Appearances:	J G Miles QC for Appellant J E Hodder and E S K Dalzell for Respondent
Judgment:	29 October 2001

JUDGMENT OF THE COURT DELIVERED BY RICHARDSON P

[1] This appeal is against the judgment of Gendall J, reported at [2000] NZAR 297, dismissing Mr White's application for judicial review of the decisions of the Board of the New Zealand Stock Exchange ("the Board"), which declined Mr White's application for individual associate membership of the Stock Exchange, and of the Membership Appeal Committee of the Stock Exchange ("the Appeal Committee"), which dismissed Mr White's appeal against the Board's decision.

The application to the Board

[2] The New Zealand Stock Exchange Rules 1996, replacing the 1993 Rules, were made under s7 of the Sharebrokers Amendment Act 1981 by the New Zealand Stock Exchange and were then approved by the Governor-General in Council on 21 October 1996 and gazetted on 25 October 1996. Rule 8.12 provided:

8.12 Client advisers and investment advisers to be at least individual associate members: Each member firm shall ensure that all of its employees, officers, agents and principals who are acting as client advisers and/or investment advisers must be at least individual associate members, provided that this Rule shall not apply for a transitional period of six months following the coming into force of these Rules.

[3] Mr White, who was currently employed by a member firm, applied for associate membership.
[4] The basis for the Board's decision, as advised to Mr White by letter of 25 March 1997, was:

The Board considered your application for membership in terms of Rule 7.1 and was unable to satisfy itself that you would meet the requirements of Rule 5.1(a)(iv) or that the requirements of Rule 8 were met (in accordance with Rule 7.1). The Board considers it must take past conduct into account in arriving at a decision to accept or reject a membership application.

[5] The Board had considered the application at two meetings. The Minutes of the earlier meeting of 19 February 1997 record:

The meeting discussed an application from an employee of DF Mainland Securities Limited who had been employed by Cavill White Securities Limited and had been found in a 1990 court case to have lied and falsified documents in relation to an earlier transaction. Mr Ricketts pointed out that the Exchange needed to uphold its standards and the Chairman noted that the Exchange held member firms responsible for monitoring the standards. It was noted that one of the references supplied by the applicant was dated 1991 and that an up-to-date reference should be obtained.

Mr Trotter pointed out that the Exchange should take a realistic approach when considering applications and should not be mechanistic.

[6] Mr White had been employed by Jordan Sandman at the time of the incident which led to the 1990 case and by Cavill White when the resultant publicity led eventually to his departure from that firm.
[7] Following the February meeting a list of applicants for full and associate membership was circulated to members of the Stock Exchange. Three members wrote to the Board about Mr White's application. One baldly objected to Mr White as not being "worthy of membership". Without formally objecting, the other two raised questions for the Board to consider.
[8] The second meeting was on 19 March 1997:

The meeting noted that correspondence had been received in respect of an application from Mr J White of DF Mainland Securities Limited suggesting that this application should not be accepted. The Board reviewed the earlier history of events concerning relating to the termination of Mr White's employment with Jordan Sandman Were Limited and Cavill White Securities Limited and it was concluded that in view of this background the application could not be accepted.

[9] To complete the narrative of the advice conveyed by Mr White following the decision, we record that the Stock Exchange advised Mr White in its letter of 2 May 1997 responding to Mr White's Privacy Act request:

We also note that the statutory declaration which you provided in support of your application for associate membership did not comply with the requirements of Rule 5(1)(b) of the Rules in that you did not declare that you are "without record of dishonest or fraudulent activities". In this regard we refer to the judgment of Justice Tompkins in the McKittrick case where His Honour concluded that you had committed "a deliberate, carefully constructed fraud", a finding which you have consistently accepted to be correct.

[10] The 1996 Rules relevantly provide:

7.1 Board considers application: The Board shall consider all applications for membership of the Exchange. The Board shall review each application for membership and satisfy itself that the requirements of all relevant Rules, including Rules 4, 5, 6, 8 and 9 (as appropriate), have been met.

7.2 Appeal of application decision: An unsuccessful applicant for membership of the Exchange shall have the right of appeal against this decision.

7.9 Proceedings of Membership Appeal Committee: The Membership Appeal Committee may, in lieu of a meeting, transact business by letter, facsimile, telex, telephone or any commonly used form of electronic communication. Unless otherwise provided by these Rules, the Membership Appeal Committee shall have the power to regulate its proceedings in whatever manner it deems appropriate.

5.1 The Board shall admit as an individual member of the Exchange a natural person who has applied for membership of the Exchange in accordance with Rule 4 if:

(a) The person supplies evidence satisfactory to the Board to the effect that: In the case of an application to become an individual associate member: ...

(iv) He will at all times fully observe the Rules and will carry out his responsibilities as a member and stockbroker honestly and diligently. Without limiting the power of the Board to satisfy itself with regard to this requirement, it may accept references from at least two suitable persons (other than persons connected with the member firm then employing the applicant) as evidence of the applicant's intentions in this matter.

...

(b) The person has delivered to the Board a statutory declaration stating that the person is a fit and proper person without record of dishonest or fraudulent activities ...

(c) The person provides in writing and, if required by the Board, by statutory declaration, such other information in addition to that specified above as the Board may request; ...

8.1 Conduct of members: Every member shall:

(a) At all times observe proper ethical standards and act with honesty, integrity, fairness, due skill and care, diligence and efficiency and within the member's competence;

(b) Refrain from any action, conduct, matter or thing which may be detrimental to the well-being or proper conduct of the Exchange, or which may discredit the Exchange and its members or bring the Exchange or members generally into disrepute; and

(c) Comply with the Rules and at all times observe good stockbroking practice.

[11] Mr White's conduct referred to in the letter of 25 March 1997 was wrongly claiming to a client in November 1987 that he, Mr White, had an audiotape of a telephone conversation concerning the purchase of shares for the client, a Mr McKittrick, supporting the purchase price which the client had not paid, and then, of fabricating a transcript of that supposed audio record.
[12] In High Court proceedings for recovery against the client, Tompkins J, in his judgment of 9 February 1990, characterised the conduct as "a deliberate, carefully constructed fraud". On appeal Hardie Boys J, who delivered the leading judgment, said that by lying and also by fabricating evidence, Mr White had all but destroyed any possibility of being given credence. The Judge described the claim made in the telephone conversation to have an audio record as a "deceit" and said that the whole episode reflected on the professional integrity of those concerned, referring to the law firm involved in seeking recovery from Mr McKittrick, as well as Mr White.

The appeal to the Appeal Committee

[13] The Appeal Committee was chaired by a Queen's Counsel. One of the other two members was an experienced businessman and the other a senior member of the Stock Exchange.
[14] The course adopted by and before the Appeal Committee was summarised in its decision in this way:

INTRODUCTION

By an application dated 15 January 1997 John Andrew White who was employed by D.F. Mainland Securities Limited applied to the New Zealand Stock Exchange. In support of his application he filed a declaration declared on 16 January 1997 together with a copy of his Share Broker's Licence C15325, a copy of his Bachelor of Laws Degree and Bachelor of Arts Degree, a curriculum vitae supported by three references and a letter from D.F. Mainland Securities Limited dated 15 January 1997. At meetings of the Board of the Stock Exchange on 19 February and 19 March 1997 Mr White's application was considered and declined. It is from the decision of the Board of the Stock Exchange that Mr White appeals to the Membership Appeal Committee ("the Committee").

In preparation for the Committee to hear the appeal the Chairman conferred with counsel, Mr Miles QC for Mr White and Mr Hodder for the Board of the Stock Exchange. A timetable to provide certain documentary material was put in place so that a hearing set down for 27 May, 1997 would proceed.

As part of the timetable Mr Hodder provided material which consisted of:

- Mr White's Membership Application and supporting documents (already referred to above);

- Three letters received by the Board of the Stock Exchange objecting to Mr White's application for individual associate membership of the Stock Exchange;

- Copies of the minutes of the Board of the Stock Exchange meetings on 19 February and 19 March 1997 pertaining to Mr White's application;

- A series of documents held by the Stock Exchange.

In support of the appeal Mr White's points on appeal were filed together with a supporting affidavit by him sworn on 21 May 1997, which duplicated some of the material provided by Mr Hodder. Affidavits were filed also by Mr Flower, sworn on 20 May 1997, and Mr Mellor sworn on 22 May 1997, which supported the appeal. The grounds of Mr White's appeal set out in his Points on Appeal are:

"6.(a) In breach of the rules of natural justice Mr White was not given the opportunity to be heard or give evidence in response to the Board's criticism;

(b) Mr White had a legitimate expectation that his application would be granted; and

(c) There is insufficient evidence to find that Mr White would not satisfy the requirements of Rules 5.1(a)(iv) or Rule 8 of the NZSE Rules 1996."

On behalf of the Stock Exchange a synopsis of submissions was filed together with affidavits by Mr Harriman sworn on 26 May, 1997 and Mary Meyers sworn on 23 May, 1997.

None of the deponents were cross-examined. With the Committee regulating its procedure the appeal proceeded on the basis that all the material was received and given such consideration and weight as may be appropriate in considering the appeal advanced and opposition to it. Apart from one helpful intervention by Mr White to explain to the Committee an issue the hearing was conducted by way of oral submissions by Mr Miles QC and Mr Hodder supplementing the written material referred to above.

[15] In his lengthy supporting affidavit Mr White did not complain specifically about the Board's failure to inform him of the three letters it had received concerning his application. The thrust of his concern was expressed in the concluding paragraph of the affidavit:

42. AFTER 17 years working in the industry and with one major error of judgment 10 years ago, I was very upset to read that the Exchange had declined my application without giving me the opportunity to respond or explain the circumstances of the error. I have paid a heavy price for my indiscretion which has cost me dearly in terms of income, reputation and employment. This appeal will be the fourth legal proceeding to occur because of this event.

[16] The other immediately relevant paragraphs are:

16. MY immediate senior was Mr Scott Richardson. I advised him of the steps I had taken with regard to Mr McKittrick. He knew what I had done and actually came with me to Mr McKittrick's business premises when I was trying to contact him.

17. MR Michael Black of Rudd Watts and Stone was instructed to act for the company to recover the debt from Mr McKittrick. I advised Mr Black that I had bluffed about the tape. Mr Black advised me to continue to run the bluff. Mr Richardson was present at a meeting with Mr Black when the issue of the tape and transcript was discussed.

34. I heard nothing further from the NZSE about the McKittrick affair until my application this year to become an associate member. I have been open and frank with my subsequent employers about the affair as I have not wanted to mislead anyone. I have been employed for the last 10 years as a stock broker and corporate advisor without any incident. I have been involved in the stock broking industry for the last 17 years and the only serious problem that I have had was the McKittrick affair. I deeply regret the steps that I took with regard to the transcript. However at the time I had an incredible amount of pressure placed on me. I was advised by my solicitor to continue using the transcript. My employer at the time, Jordans, was fully aware of the steps I was taking.

[17] Following that introduction the Appeal Committee reviewed the legislation and Rules, observing that the Rules made no provision for a hearing type procedure by the Board once an application is received. They then discussed at length the McKittrick matter. After reviewing the evidence in the High Court, and the judgments in the High Court and this court, the Appeal Committee dealt with the submissions made on Mr White's behalf before the Committee in this way:

Mr Miles QC submitted that Tompkins J's judgment in his criticism of the transcript was harsh, and not justified on the evidence before the Judge. We do not agree. Whatever the evidence, and whatever words were used by the Court of Appeal Judges, in our view, with respect, the findings of Tompkins J were open to him on the evidence before him.

In paragraph 35 of his written submission Mr Miles QC submitted (and supplemented this submission with his oral submissions) that:

The view expressed by Tompkins J is noted but it is submitted it is incorrect. Difficult to see how it could probably be described as "a deliberate, carefully constructed fraud" - see page 151. The contents of the document were not made up. It was an accurate reconstruction of the conversation that Mr White had with the client which the client was not denying. Appropriate for White to write out his best recollection of the precise wording of the conversation. His only mistake was to describe the reconstruction as a tape rather than a reconstruction. He was not using the document to obtain money he was not entitled to. Note McKittrick's solicitors were always sceptical and were not deceived - see 121.

The transcript is not a file note of a telephone conversation. It is constructed, falsely and deliberately to give the appearance of an accurate record taken from an audio recording of what was said between Mr White and Mr McKittrick on 21 October 1987. In looking at the transcript which we have set out above the whole document is constructed to accord with an actual audio recording. It is false and dishonest.

Mr Miles QC excuses Mr White's transcript in Mr White was not attempting by the transcript to dishonestly obtain money, merely to obtain an acknowledgement of the truth. Furthermore that there seemed to be some justification for what Mr White did as to what Mr Miles describes on his instructions as Mr White being very upset at Mr McKittrick lying on the crucial issue of the telephone conversation; he had approval from his immediate superior in Jordan Sandman Smythe Limited to do what he did; and he was acting on legal advice from the outset. Whatever he did about the false transcript he did not lie about it in the High Court proceeding. Furthermore no disciplinary action was taken against his employers or his solicitors and that in the climate of the times, that is to say before the stockmarket collapse in October 1987 in the trading that went on it had been specifically recognised by the Stock Exchange.

[18] The Appeal Committee proceeded to two matters argued before them: the language of Mr White's declaration under Rule 5.1(b) and his desire to have his name cleared. In his declaration Mr White had said that he was "a fit and proper person without criminal record of dishonest or fraudulent activities" (our emphasis). The Appeal Committee said:

Mr Miles QC went on to reject on Mr White's behalf any suggestion that Mr White acted improperly in failing to record in his application in writing for individual associate membership the McKittrick affair as, in Mr Miles QC's submissions, that may be excused as the wording of the Rules suggest a criminal record. We do not agree. The words are clear and relate to the requirement in a declaration that an applicant:

... is a fit and proper person without record of dishonest or fraudulent activities ...

Criminal activity would fall within those words. So also does the activity in which Mr White engaged as to the fraudulent transcript. Mr Miles QC goes on to say that the Stock Exchange was well aware of the McKittrick incident, as indeed it must have been. He then refers to correspondence between the Stock Exchange and Mr White where Mr Miles QC submitted that Mr White had been trying from the outset to have the issue dealt with in an appropriate forum and have his name cleared. The appropriate forum for the issue to be dealt with, whether clearing Mr White's name or not, was to squarely set out the matter in Mr White's application for individual associate membership of the Stock Exchange in our view. Mr White, while perhaps not expecting to be able to hide from all consideration in the McKittrick affair, certainly endeavoured to avoid the McKittrick affair in his declaration in our view.

[19] Next, the Appeal Committee discussed Mr White's employment with Cavill White and its termination before turning to Mr White's challenges on appeal to the Board's decision. The Committee characterised the case as one where Mr White was applying within certain Rules for admission to the Stock Exchange as an individual associate member, not as one where an applicant held an existing licence or approval, or position. They concluded that there was no breach as contended of the rules of natural justice as to a hearing and went on to hold:

In our view, there was evidence from the McKittrick litigation to allow the Board of the Stock Exchange to reject Mr White's application for individual associate membership having regard to Rules 5(1)(a)(iv) and 8.1(a) and (b).

[20] Then, for the reasons they gave, they held that it was not a case where there was a legitimate expectation that upon the filing of the membership application a hearing would be afforded. The decision continues:

Furthermore, in our view the members of the Board would have known about the McKittrick share purchase litigation which so much involved Mr White and his dishonesty as to the transcript of the telephone conversation. It is clear, and would have been clear to the Board, that that civil litigation arose out of the activities of a sharebroker in accepting instructions from a member of the public to purchase shares which led, eventually, to the dishonesty of the sharebroker being unveiled.

[21] The Appeal Committee then immediately went on in the final substantive paragraph of the decision to say:

We agree with Mr Hodder's submission that the Board of the Stock Exchange is charged with the maintenance of standards as to public policy issues of significance which were involved in maintaining high standards for those advising on and handling investment transactions. The Stock Exchange is a membership organisation; its Board is charged with the responsibility of maintaining its standards; the Board had a close knowledge of the standards and expectations of its members and of the interests (reputational or otherwise) of the Stock Exchange; and the Board's view that a record of dishonesty is incompatible with membership. The Board of the Stock Exchange cannot be said to be wrong in the circumstances of Mr White's application in refusing it.

The High Court decision

[22] Four issues were raised on the argument of the Judicial Review proceedings: breach of natural justice, legitimate expectation, bias of two members of the Appeal Committee, and the curative effect of appeal on any deficiencies arising on the Board's consideration of the application. Legitimate expectation is not separately pursued on the appeal. Bias is no longer an issue. As noted earlier, the judgment of Gendall J is available in the reports and it is not necessary for present purposes to traverse the arguments or the Judge's reasoning on the remaining issues in detail.
[23] Gendall J recorded as the essence of Mr White's contentions as to natural justice:

[a] That this was a "licence" case, as opposed to the Exchange's argument that it was a "membership" case. As such, the Board's decision led to the removal from the plaintiff of an existing right or benefit, so as to impose upon the Board an obligation to give the plaintiff a hearing of his application. It was submitted that if the Board intended to take into account the past conduct of the plaintiff, it had a duty to tell him and to give him the opportunity of being heard further by responding to allegations and adverse comments.

[b] That the hearing before the Appeal Committee could not cure such a breach of the rights of the plaintiff.

...

[24] For the reasons he had given, particularly in the immediately preceding paragraphs, Gendall J concluded:

[a] In its consideration of the plaintiff's application for associate membership the Board was obliged to act fairly, reasonably and not capriciously. It met that obligation.

[b] In the context of the Rules, as well as the nature of this membership application, the plaintiff did not have an absolute right to be heard by the Board as to how it determined his suitability for membership when he knew of the earlier allegation or finding of misconduct and had the opportunity, in his application, of speaking to it.

[c] Once the plaintiff had complied with the requirements of disclosure, fair dealing would have required he be heard if allegations of other misconduct were made against him, of which he was unaware. But here the facts of misconduct were known to him, but not disclosed to the Board. He says he knew that the Board was aware of them. The only issue was what conclusions as to character and fitness to membership the Board drew from such accepted facts.

[d] In such circumstances there had been no unfairness to the plaintiff or breach of his rights. There is no basis upon which the Board's decision can be declared unlawful.

[25] Then, as he said for completeness, the Judge dealt with and rejected three matters referred to by counsel. The only one which needs mention is:

[a] He [counsel for Mr White] submitted that the Board, in any event, erred by applying the wrong test. Counsel submitted that the rule (Rule 5.1(a)(iv)) refers to the future in the sense that the plaintiff:

... will at all times ... carry out his responsibilities as a member and stockbroker honestly and diligently.

He submits that reference to past conduct, some years ago, was wrong and there was nothing in the Board's minutes to suggest that emphasis on future conduct was paramount. I do not agree. The Board specifically refers to Rule 5.1(a)(iv) and in its later letter says it took into account past conduct. Character can usually only be judged upon past behaviour, and predictions of future behaviour or inclinations can only be assessed by such a consideration. That was a matter for the judgment of the body of business and professional people entrusted with that task.

[26] On what is now the remaining issue, Gendall J held that, even if a defect originally occurred in the Board's procedure, he would decline to grant the discretionary remedy sought because a full and fair hearing occurred before the Appeal Committee.
[27] The Judge reviewed the relevant authorities, concluding that the proper approach approved by this court in Malkit Singh v Attorney-General [1999] NZCA 264; [2000] NZAR 136 is that recognised by Tipping J in Nicholls v Registrar of the Court of Appeal [1998] 2 NZLR 385, 437:

To my mind, the correct approach is this. The Court should first identify the error, or errors, which are said to vitiate the first instance decision. The second step is to examine what effect the appeal has had on the error, or errors, found at the first stage. If the appeal has in substance removed the prejudice which would otherwise have resulted to the complaining party, the Court should exercise its discretion against relief, because overall no continuing prejudice from what went wrong at first instance can be shown. Where, as here, there has been review by way of a rehearing, which is said to have cured any earlier problems, I would put the onus on the applicant for judicial review to demonstrate continuing prejudice. It is only if there is continuing prejudice that the first instance error, or errors, have continuing relevance.

[28] Applying that approach, Gendall J held :

[66] In cases of membership applications to the Exchange, an applicant agrees to abide by the Exchange rules as he must if he becomes a member. The Rules provide for a full review by way of appeal if an applicant is disappointed by the Board's decision and the scheme of the Rules reveal a process that as a whole is designed to afford fair consideration of applications. That, together with the nature of the appeal hearing comprising a de novo approach, the receipt of evidence, representation by counsel, make it clear to me that no continuing prejudice or harm arose to the plaintiff, if it be true that an error occurred initially in the sense that the plaintiff was not "heard".

Natural justice

[29] The general principles governing the requirements of natural justice are reasonably well settled. The difficulty lies in their application in the wide variety of circumstances in which the question may arise.
[30] In Malkit Singh this court approved the approach proposed by Tipping J in Nicholls v Registrar of the Court of Appeal cited at para [27] above. However, it also set out Randerson J's summary at first instance in Malkit Singh of the principles relevant when considering the effect of an appeal hearing upon a prior breach of natural justice, and an extended passage from Aronson and Dyer, Judicial Review of Administrative Action (1996).
[31] It is convenient to repeat the relevant passages. First, from Randerson J:

[a] An appeal following a first instance hearing or decision does not normally oust the jurisdiction of this Court on review to redress breaches of natural justice or other administrative law error by the body at first instance and does not necessarily cure any prior breach: Reid v Rowley and Anor [1977] 2 NZLR 472, 481 approved by the Privy Council in Calvin v Carr [1979] UKPC 1; [1980] AC 574, 595-596.

[b] But the existence of an appeal may be a factor relevant to the exercise of the discretion to grant relief: Reid v Rowley at pp483-484; Calvin v Carr at p596; Wislang v Medical Practitioners Disciplinary Committee [1974] 1 NZLR 29, 44; and Taylor on Judicial Review (1991) para 2.40.

[c] In considering the exercise of discretion, much will depend upon:

[i] The gravity of the error or breach at first instance.

[ii] The likelihood that the prejudicial effects of the error may also permeate the appeal hearing.

[iii] The seriousness of the consequences for the individual.

[iv] The nature and extent of the powers of the appellant body.

[v] Whether the appellate decision is reached only on the basis of material before the original decision maker or by way of rehearing de novo. De Smith, Woolf and Jowell, Judicial Review of Administrative Action 5th ed, para 10.022).

[d] The circumstances may range from a situation where the parties may be taken to have assented to the appellate hearing as superseding the hearing at first instance and to have accepted the fairness of such a procedure (for example, by the rules of a social or sporting club) to those where there is a right to expect nothing less than a fair hearing in both instances: see the discussion by Lord Wilberforce in Calvin v Carr at pp592-593.

[e] It may be that, in the end, as observed in De Smith at 10.022:

... Recent case law indicates that the Courts are increasingly favouring an approach based in large part on an assessment of whether, in all the circumstances of the hearing and appeal, the procedure as a whole satisfied the requirements of fairness.

[32] Second, from Aronson and Dyer (at p476):

Nevertheless, it is well established that the existence of certain types of appeal rights may affect the application, or at least enforcement, of the requirements of natural justice. It is worth pausing to consider why this might be. Two lines of argument are commonly suggested. One approach holds that the presence of a right of appeal is in some way indicative of a legislative intention to exclude natural justice. It is said that the appeal shows that the legislature "turned its mind" to the question of the manner in which persons affected should be heard. The other approach focuses on the potential of a full right of appeal to redress unfairness in the initial decision. If there is an appeal on the merits by way of de novo hearing, to a person who is unlikely to be affected by what occurred at first instance, the appeal may be able to provide all that procedural fairness requires. If so, it is a far superior remedy for breach of natural justice than judicial review, since it will not only redress the initial unfairness more effectively and quickly than judicial review can, but also replace the initial decision with a fresh decision on the merits. This provides a strong justification for Courts allowing such appeals to cure defects and requiring those complaining of breach of natural justice to exercise their rights of appeal instead of seeking judicial review.

[33] Importantly, in Malkit Singh this court went on to reject the compartmentalised approach contended for in that case and to hold, at p142, that there was nothing in the immigration legislation indicating any need to regard the process before the Refugee Status Branch as requiring special consideration separate from the scheme as a whole.
[34] Before turning to consider the position before the Board, we should note para (c) of the points on appeal:

(c) There is insufficient evidence to find that Mr White would not satisfy the requirements of Rules 5.1(a)(iv) or Rule 8 of the NZSE Rules 1996.

That ground is clearly directed to the merits and to the material in that regard before the Appeal Committee when making its decision.

The Board and natural justice

[35] The 1996 Rules provide a subordinate legislative context under which the decision as to membership is for the Board (Rule 7.1). The business and affairs of the Stock Exchange are managed by and under the control of the Board (Rule 10). The Board has general responsibility for the standard of conduct of the members and an extensive range of administrative responsibility. By contrast with the Rules relating to discipline and complaints matters (Rule 18), there is no reference to the need for a hearing before the Board or for the participation of lawyers.
[36] Rule 7.1 requires the Board to consider all applications for membership, to review each application and to satisfy itself that the requirements of all relevant Rules have been met. An unsuccessful applicant for membership has the right of appeal against that decision (Rule 7.2) and the remaining paragraphs of Rule 7 are directed to the Appeal Committee and the appeal.
[37] There is nothing in that legislative context and that structure to support the proposition that the Board was obliged to afford an automatic oral hearing before the Board to every applicant for membership. The obligation on the Board is to review each application and "to satisfy itself" that the requirements of all relevant Rules have been met. Had a full hearing before the Board in every case been contemplated by the framers of the Rules, a process different from Rule 7.1 would surely have been provided.
[38] The Rules, and in particular Rule 7.1, appear to contemplate a straightforward decision on the papers in which the Board would, of course, exercise its judgment as to whether, having regard to the applicant's past conduct and his references, it could satisfy itself that the applicant would carry out his or her responsibilities as a member and stockbroker honestly and diligently (Rule 5.1(a)(iv)) and would meet the standard of conduct of members prescribed in Rule 8.1. There is legitimate room, however, in that legal framework for the play of natural justice where, although papers forwarded by the applicant may on their face support the grant of membership, the Board has concerns from other information in its possession to doubt whether it will be able to satisfy itself that the requirements of the relevant Rules have been met
[39] Once the Board had received the three letters from members objecting to or querying Mr White's application for membership and, as well, the Board had recognised Mr White's conduct in relation to the McKittrick affair as a relevant consideration (a matter which Mr White had not in his application sought to explain or even disclose), fairness required that he be told of the Board's concerns and given the opportunity to provide a response.
[40] With respect, we consider Gendall J erred in concluding that there had been no unfairness to Mr White in the course that the Board followed. For whatever reason Mr White failed to disclose the McKittrick incident, it is clear from the Minutes of the February meeting that the Board regarded it as of continuing significance in their assessment of his fitness for membership. Not content to rely on the references Mr White provided, the Board then circulated members for comment and received three negative or questioning responses. In declining the application at the March meeting the Board went beyond the material provided by Mr White to conclude that in view of the background outlined in the Minutes, Mr White's application could not be accepted.
[41] For these reasons we hold that the Board breached the obligations of natural justice in reaching its decision declining Mr White's application without drawing their concerns to his attention and giving him the opportunity to comment.

Appeal Committee decision

[42] The crucial question is whether Gendall J was correct in concluding that a fair hearing occurred before the Appeal Committee and that there was no continuing prejudice or harm stemming from the Board's consideration of the application (paras [26] and [28] above). As we see it, this raises two associated questions. One is whether the Appeal Committee made its own independent evaluation of considerations relevant to a determination as to whether or not it was satisfied that Mr White's application for membership then met the requirements of all relevant Rules. The other is whether, in reaching their decision, the members of the Committee deferred to the Board's decision as one open to the Board having regard to its composition. The point is that the Board's decision was flawed, for the reasons we have given. While the members of the Committee were entitled to recognise that the Board's expertise could be relevant in considering standards of future conduct to be expected of associate members of the Stock Exchange, they erred if they were influenced by their earlier conclusions on the challenge to the Board's decision, i.e. that there had been no breach of natural justice.. The two questions run together. The answer is essentially a matter of drawing inferences from the text of the Appeal Committee's decision in the context of the arguments addressed to the Committee.
[43] The relevance or, rather, irrelevance of the three letters received by the Board in 1997 to the evaluation the Appeal Committee was required to make in June 1997 of Mr White's fitness to be an associate member of the Stock Exchange needs only the briefest mention. The Appeal Committee had received two affidavits as to Mr White's character and, given all the material before the Committee and the focus of the submissions to the Committee, in not reverting to the three letters the Committee must be taken to have concluded they were not then of any relevance to their assessment. That view was one the Committee could properly reach.
[44] The more difficult matters are whether it is evident that the Appeal Committee expressly directed its attention to para (c) of the points of appeal and, if so, made its independent evaluation of Mr White's fitness for associate membership. They did not do so explicitly. Nor did they ever state that looking at the matter afresh themselves, or words to that effect, they were satisfied that Mr White did not meet the requirements of the Rules. And the indicators in the decision do not all clearly point to that conclusion. There are pointers both ways.
[45] First, in taking up the modification, by Mr White's insertion in his declaration of "criminal", in the form of the statutory declaration provided for in Rule 5.1(b), the Appeal Committee was clearly assessing that aspect themselves (para [18] above). Second, there are some indications of a current evaluation by the Appeal Committee of the McKittrick affair. Thus, they rejected Mr Miles' submission that Tompkins J's criticism of the transcript was harsh and not justified and, more importantly, characterised the document as "false and dishonest" (para [18]).
[46] But they did not evaluate or express any conclusions as to Mr Miles' submissions by way of explanation, justification and excuse for the McKittrick incident (in the second paragraph quoted in para [18] above). In that regard they did not follow up on the submission as a mitigating factor that Mr White's superior at Jordan Sandman was implicated, a point not raised in the evidence before Tompkins J or in the evidence in the Employment Court proceedings, following Mr White's dismissal by Cavill White.
[47] Neither the immediate context nor other pointers in the decision could in our view justify the inference that the Appeal Committee must be taken to have weighed and rejected those explanations, justifications and excuses. Further, the decision tends to employ language pointing against the inference that the Committee was itself looking at the matter afresh and reaching its own independent conclusion. Thus, the Committee spoke of the findings of Tompkins J as being open to him on the evidence before him (para [17] above) and of there being evidence from the McKittrick litigation to allow the Board to reject Mr White's application for membership (para [19] above). A similar theme goes through the Appeal Committee's discussion of the Board's position. The focus in paras 20 and 21 is on the knowledge the Committee attributed to the Board, leading to the conclusion in the final substantive paragraph of the decision that "the Board of the Stock Exchange cannot be said to be wrong in the circumstances of Mr White's application in refusing it". The source of the reference in that paragraph to "the Board's view that a record of dishonesty is incompatible with membership" and what is meant by "a record" are not apparent. That point is not clarified in either the February or the March minutes or in the letter to Mr White of 25 March 1997. Indeed, that reference in that paragraph is immediately followed by the conclusion that the Board "cannot be wrong in the circumstances of Mr White's application in refusing it". While we accept Mr Hodder's submission that we should guard against reading too much into methods of expression, our clear overall impression is that there has been a deference to the Board's view more appropriate to review than appeal.
[48] In short, it is not evident from the decision that the Appeal Committee was expressing a wholly independent conclusion as to Mr White's fitness for membership. Beyond stating that the appropriate forum for Mr White to have his name cleared was by squarely setting out the matter in his application for associate membership of the Stock Exchange (para [18] above), the Committee did not discuss Mr White's experience and conduct in the years since the McKittrick incident and the hearing before Tompkins J. Nor did they make an assessment as to whether or not in their view, Mr White did then meet the behavioural standards required of members by the Rules.
[49] In the result, and with respect to the contrary view reached by Gendall J, we are not persuaded that the Appeal Committee looked at the matter afresh, made its own evaluation of Mr White's current fitness for membership of the Stock Exchange, and satisfied itself as to whether or not the requirements of the Rules as to membership of the Stock Exchange were met.

Result

[50] The appeal is allowed, the orders made by Gendall J are quashed and there will be a declaration that the decisions of the Board and the Appeal Committee, including the Committee's costs order are invalid. It will be for Mr White to decide whether to make a fresh application for membership to the Board or to pursue the existing application. Mr White is entitled to costs on the appeal to this court which are fixed at $5,000 together with all reasonable disbursements as fixed, if necessary, by the Registrar. Costs in the High Court are to be fixed in that court, if the parties are unable to agree.

Solicitors
Grove Darlow & Partners, Auckland, for appellant
Chapman Tripp, Wellington, for respondent