Rich v Australian Securities and Investments Commission

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gleeson CJ,Gummow,Hayne,Callinan,Heydon JJ.,McHugh J,Kirby J
• Judgment Date: 09 September 2004
• Neutral Citation: 2004-0422 HCA A,[2004] HCA 42
• Docket Number: S131/2004
• Date: 09 September 2004

[2004] HCA 42

HIGH COURT OF AUSTRALIA

Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan AND Heydon JJ

S131/2004

John David Rich & Anor

Appellants

and

Australian Securities and Investments Commission

Respondent

Representation:

Mr B W Walker SC with D L Williams SC and S A Goodman for the appellants (instructed by Joanne Kelly)

R B S Macfarlan QC with M A Wigney and N J Beaumont for the respondent (instructed by Australian Securities and Investments Commission)

Corporations Act 2001 (Cth), ss 180(1), 206C, 206E, 1317E, 1317H, 1317L.

Rich v Australian Securities and Investments Commission

Practice and procedure — Discovery — Privileges against exposure to penalties and forfeitures — Proceedings brought by Australian Securities and Investments Commission seeking declarations of contravention under the Corporations Act 2001 (Cth), s 1317E, compensation orders pursuant to the Corporations Act 2001, s 1317H and orders pursuant to the Corporations Act 2001, ss 206C and 206E disqualifying each defendant from managing corporations — Rules of evidence and procedure for civil matters to apply — Where defendant ordered to make discovery — Where disqualification described as ‘civil penalty provision’ by the Corporations Act 2001 — Whether exposure to disqualification order is exposure to a penalty — Whether order is ‘punitive’ or ‘protective’ and whether this classification is useful — Whether order for discovery should have been made.

Statutes — Interpretation — Construction of Corporations Act 2001 — Provision for disqualification of company officers from managing corporations in the future — Disqualification contained in ‘civil penalty provisions’ of the Corporations Act 2001 — Whether exposure to disqualification order is exposure to a penalty for purposes of the penalty privilege — Whether order for discovery should have been made.

Words and phrases — ‘penalty’, ‘civil penalty provision’, ‘punitive’, ‘protective’.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales 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.

1 Gleeson CJ, Gummow, Hayne, Callinan AND Heydon JJ. The appellants were directors of One. Tel Ltd (‘One. Tel’), a company now in liquidation. The respondent (‘the Commission’) has commenced proceedings in the Supreme Court of New South Wales against the appellants. The Commission seeks three kinds of relief in those proceedings:

• (a) declarations under s 1317E of the Corporations Act 2001 (Cth) (‘declarations of contravention’);

• (b) orders pursuant to s 1317H(1) of the Act (‘the 2001 Act’) that the appellants pay One. Tel compensation (‘compensation orders’); and

• (c) orders pursuant to ss 206C and 206E of the 2001 Act disqualifying each appellant from managing a corporation for such period as the Court considers appropriate (‘disqualification orders’).

2 The Commission sought an order in those proceedings that the appellants make discovery of documents. The appellants resisted that application, contending that the proceedings exposed the appellants to penalties and that, for that reason, they should not be ordered to make discovery.

3 The primary judge, Austin J, ordered the appellants to make discovery of documents by verified list 1. The appellants' appeal to the Court of Appeal of New South Wales against that order, and against an order that the appellants file and serve affidavits giving the evidence they would intend to adduce at the trial of the proceedings, was dismissed 2. Spigelman CJ, with whose reasons Ipp JA agreed, concluded 3 that the Commission's proceedings against the appellants were not penal. In their Honours' view 4, the power to disqualify the appellants from managing a corporation was ‘purely protective’, and was not a power that could ‘be exercised in order to punish’. The third member of the Court of Appeal, McColl JA, disagreed, concluding 5 that the distinction between

‘punitive’ and ‘protective’ purposes was a false dichotomy. Rather, in her Honour's view 6, a long stream of authority, including this Court's decision in Police Service Board v Morris7, required the conclusion that a proceeding which sought orders disabling a person from acting as a director was a proceeding for a penalty, even if 8 the making of such an order may also have had some protective purpose.

4 By special leave, the appellants appealed to this Court. The only question argued in this Court was whether an order for discovery should have been made. The questions agitated in the courts below about the order requiring the appellants to file their affidavit evidence, before the commencement of the trial, were not argued in this Court. The Commission accepted that if discovery should not have been ordered, the order requiring the appellants to file and serve affidavits should not have been made.

5 At the conclusion of the oral argument of the appeal, the Court ordered that the appeal be allowed with costs, the orders of the Court of Appeal made on 26 November 2003 be set aside and in their place there be orders: (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.

6 What follows are our reasons for joining in those orders.

7 Consideration of the issues raised in the appeal must begin from an examination of the statutory provisions that are sought to be engaged in the Commission's proceedings against the appellants.

8 The conduct and events which the Commission alleges warrant the making of the orders sought all occurred before 15 July 2001, when the 2001 Act came into force, and at a time when the legislative provisions governing corporations and their officers were principally found in the Corporations Laws

of the States 9. The Corporations Act 1989 (Cth) was repealed, with effect from 15 July 2001, by the Corporations (Repeals, Consequentials and Transitionals) Act 2001 (Cth) and State legislation was enacted to accommodate that repeal. It was not suggested that, for the purposes of this appeal, anything turned on these legislative events or upon the related changes made to the legislation establishing and regulating the Commission 10.

9 The Commission commenced its proceedings against the appellants in December 2001, after the commencement of the 2001 Act. It was accepted that the 2001 Act regulated the procedures to be followed in the Commission's proceedings. Argument of the appeal went forward by reference to the 2001 Act which, when first enacted, in all relevant respects was substantially identical to the equivalent provisions of the Corporations Law. Despite some subsequent amendments, the relevant provisions do not now differ in any material respect. It is convenient to refer to the provisions of the 2001 Act and the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’) in the form they took at the time the order for discovery was made.

10 Three particular features of those provisions will be noted: first, the basis of the Commission's authority to institute the proceedings; secondly, the interrelationship of the several provisions under which the Commission seeks relief; and, thirdly, the legislative description of the nature of the relief for which the 2001 Act provides.

The Commission's authority

11 The Commission is a body corporate established under the ASIC Act. It has 11 such functions and powers as are conferred on it by or under the ASIC Act, the 2001 Act and regulations made under the 2001 Act.

12 As noted earlier, the Commission seeks declarations of contravention, under s 1317E of the 2001 Act, compensation orders pursuant to s 1317H and disqualification orders pursuant to ss 206C and 206E disqualifying each appellant from managing a corporation. Section 1317J(1) of the 2001 Act provides that the Commission may apply for a declaration of contravention of any of a number of provisions (identified in s 1317E) including s 180(1) of the 2001 Act (and its equivalent provision under the Corporations Law 12) and may apply for a compensation order. Both ss 206C and 206E expressly provide that disqualification orders may be made on application by the Commission.

13 The second feature of the relevant provisions that is to be noted is the relationship between some, but not all, aspects of the relief which the Commission seeks in the proceedings against the appellants.

Related relief

14 The declarations of contravention which the Commission seeks are declarations of contravention of s 180(1) of the Corporations Law. That sub-section provided at relevant times that:

‘A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

• (a) were a director or officer of a corporation in the corporation's circumstances; and

• (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.’

The power to seek declarations of contravention is given by s 1317E. So far as now relevant, that section provides:

‘(1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention:

• (a) subsections 180(1) … (officers' duties);

…

These provisions are the civil penalty provisions.

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