FEDERAL COURT OF AUSTRALIA

McLachlan v Australian Securities & Investments Commission [1999] FCA 244

CORPORATIONS LAW – Securities industry – Securities dealers – Regulatory bodies – Australian Securities and Investments Commission – Banning order on basis of security dealers’ duties not performed efficiently, honestly and fairly – Hearing – Whether rules of natural justice require ASIC delegate to give access to all material in possession of ASIC which might cause ASIC delegate to form relevant belief in relation to alleged conduct – Whether rules of natural justice required ASIC delegate to disqualify himself on ground of bias because he had read material which formed basis of decision to hold hearing and because he had been solicitor on record in separate proceeding between ASIC and another party arising out of the security dealing.

Administrative Decisions (Judicial Review) Act 1977 (Cth)

Corporations Law s 2, s 829, s 830, s 837

Australian Securities and Investments Commission Act 1989 (Cth) s 1(2)(a) and (b), s 57, s 59, s 60, s 102

Russell v Duke of Norfolk [1949] 1 All ER 109 referred

Reg. v Commonwealth Conciliation and Arbitration Commission; Ex parte Angliss Group (1969) 122 CLR 546 followed

Kioa v West (1985) 159 CLR 550 followed

Boucher v Australian Securities Commission (1996) 71 FCR 122 followed

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 referred

Story v National Companies and Securities Commission (1988) 13 NSWLR 661 referred

Winter v Australian Securities Commission (1995) 56 FCR 107 distinguished

Laycock v Forbes (1997) 25 ACSR 659 referred

Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 referred

National Companies and Securities Commission v News Corporation Limited (1984) 156 CLR 296 followed

Chu v Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 540 followed

Mahon v Air New Zealand Ltd [1984] AC 808 referred

Wiseman v Borneman [1971] AC 297 followed

Aboriginal Legal Service Ltd v Australian Securities Commission (1996) 22 ACSR 357 referred

Livesey v New South Wales Bar Association (1983) 151 CLR 288 referred

R v Watson; ex parte Armstrong (1976) 136 CLR 248 referred

Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375 referred

Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 referred

MALCOLM BOYD McLACHLAN v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

SG107 of 1998

HAMISH McLACHLAN v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

SG109 of 1998

O’LOUGHLIN, MANSFIELD & KENNY JJ

ADELAIDE

17 MARCH 1999

ON APPEAL FROM THE JUDGMENT OF THE HONOURABLE JUSTICE FINN

THE COURT ORDERS THAT:

1.      The appeal in matter SG107 of 1998 be dismissed with costs.

2.      The appellant in matter SG107 of 1998 pay the respondent’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM THE JUDGMENT OF THE HONOURABLE JUSTICE FINN

THE COURT ORDERS THAT:

1.      The appeal in matter SG109 of 1998 be dismissed with costs.

2.      The appellant in matter SG109 of 1998 pay the respondent’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM THE JUDGMENT OF THE HONOURABLE JUSTICE FINN

REASONS FOR JUDGMENT

O’LOUGHLIN J:

1                     I have had the opportunity of reading in draft the Reasons for Judgment of Kenny J.  I agree with the orders proposed by her Honour and her reasons for those orders.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice O’Loughlin.

Associate:

Dated:              17 March 1999

ON APPEAL FROM THE JUDGMENT OF THE HONOURABLE JUSTICE FINN

REASONS FOR JUDGMENT

MANSFIELD J:

2                     I agree with the reasons of Kenny J, which I have had the advantage of reading, and the orders which her Honour proposes.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated:              17 March 1999

ON APPEAL FROM THE JUDGMENT OF THE HONOURABLE JUSTICE FINN

REASONS FOR JUDGMENT

KENNY J:

A.     BACKGROUND FACTS

3                     These two appeals were heard together.  They arise out of two separate applications for judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth).

4                     Malcolm Boyd McLachlan is a representative and managing director of Thompson Brindal Ltd (“TBL”).  Hamish Boyd McLachlan is his son and also a representative of TBL.  TBL is a member of the Australian Stock Exchange Ltd (“the ASX”) and a securities dealer licensed under s 784 of the Corporations Law.  Pursuant to Part 7.3 of the Corporations Law, the respondent, the Australian Securities and Investments Commission (“ASIC”), is responsible for regulating participants in the securities industry. 

5                     TBL, by Malcolm and Hamish McLachlan and others, conducted trading in shares and options on the accounts of clients of a company known as RetireInvest Pty Ltd (“RetireInvest”).  In May 1997 the ASX directed Dominic Francese (“Francese”) to conduct an investigation into the business of TBL.  Malcolm McLachlan, as managing director of TBL, attended for interview on 23 May 1997.  Francese produced a draft report in September that year and a final report on 12 January 1998, a copy of which, together with certain other documents, was given to the ASIC.  In that final report Francese expressed the view that Malcolm and Hamish McLachlan had engaged in conduct contrary to the Articles of Association of the ASX and its Rules, presumably in light of what followed, with respect to RetireInvest.  The validity of Francese’s investigation and final report was challenged in the Supreme Court of South Australia.  At first instance, the Chief Justice of that Court dismissed the claim for relief.  That decision was upheld on appeal by the Full Court of the Supreme Court in a judgment delivered on 11 November 1998.

6                     Officers of the ASIC conducted an investigation into the conduct of Malcolm and Hamish McLachlan and others.  Pursuant to s 102 of the Australian Securities and Investments Commission Act 1989 (Cth) (“the ASIC Law”), the ASIC appointed Valdemar Malinaric as its delegate for the purpose of deciding whether to make a banning order under s 830 of the Corporations Law against each of Malcolm and Hamish McLachlan and for the purpose of conducting a hearing.  Following the ASIC’s investigations, ASIC officers prepared a memorandum dated 27 November 1997 concerning Hamish McLachlan and a memorandum dated 10 December 1997 concerning Malcolm McLachlan.  They submitted the memoranda to Mr Malinaric.  The memoranda recommended that he exercise the authority delegated to him to make an order under s 830(1) of the Corporations Law prohibiting each of the McLachlans “from doing an act as a representative of a dealer or of an investment adviser”.  At the time Mr Malinaric received the 27 November memorandum he also received four lever arch files.  At the time he received the 10 December memorandum he received eight lever arch files.  Each set of files contained copies of the documents referred to in the accompanying memorandum.  After reading the 27 November memorandum and the contents of the four files, Mr Malinaric caused a notice of hearing to be given to Hamish McLachlan.  It was Mr Malinaric’s uncontested evidence that:

“I read the memorandum [of 27 November 1997] and accompanying documents and on 16 January 1998 issued a Notice of Hearing (“the Notice”) to [Hamish McLachlan] based on subsection 829(f) of the Law.  In reaching my decision to issue the Notice I took into account the submissions contained in the memorandum.  The only evidence I took into account was that contained in the four lever arch files of accompanying documents.”

7                     After reading the memorandum of 10 December and the contents of the eight files, Mr Malinaric caused a notice of hearing to be given to Malcolm McLachlan.  Mr Malinaric deposed that:

“My decision to issue the Notice was made solely on the basis of the information contained in the memorandum and accompanying copy documents.”

8                     That evidence was also uncontested.  Some of the documents placed before Mr Malinaric derived from the ASX. 

9                     The notice of hearing directed to Malcolm McLachlan required him to:

“TAKE NOTICE THAT a Delegate will hold a preliminary hearing on Thursday, 12 February 1998 at 10.00 am in the Hearings Room, 8^th Floor, 100 Pirie Street, Adelaide, SA, to ascertain whether or not it is appropriate to make a banning order prohibiting you from doing an act as a representative of a dealer, an investment adviser or both, for a specified period or permanently.”

10                  Amongst the recitals to the notice, it was stated:

“E.      The ASC has reason to believe that you have not performed the duties of a representative of TBL efficiently honestly and fairly, particulars of which are set out in the Schedule to this notice.

F.      The ASC may therefore make a banning order against you pursuant to section 830 of the Law prohibiting you either permanently or for a specified period from doing an act as a representative of a dealer or an investment adviser or both.”

11                  The notice of hearing directed to Hamish McLachlan was in substantially the same terms.

12                  A letter dated 28 January 1998 accompanied each notice of hearing.  The letters were in the same terms, although the letter to Hamish McLachlan was dated 16 January 1998 and to Malcolm McLachlan, 28 January 1998.  Both letters were signed by Mr Malinaric and stated in part:

“I have been appointed delegate to consider whether a banning order pursuant to section 830 of the Corporations Law should be made against you.  On the basis of the information before me I have reason to believe that you may not have performed efficiently, honestly and fairly the duties of a representative of Thompson Brindal Limited.  Section 837 of the Law requires that you be given an opportunity to appear at a hearing and to make submissions and give evidence.

Accordingly, I have issued a Notice of Hearing and this is enclosed.

…”

13                  A schedule accompanying the notice of hearing sent to Malcolm McLachlan set out the conduct alleged against him, namely:

“1.       You engaged in, and allowed others to engage in, conduct which had the effect of concealing from clients of RetireInvest the true position of their accounts with TBL.

2.       You allowed TBL to improperly trade on RetireInvest client accounts.

3.             You failed to establish appropriate procedures to enable TBL to comply with the Australian Stock Exchange (ASX) Business Rules.

4.             You failed to establish or apply any, or any effective, risk management policy, compliance controls or reporting system in relation to the trading activities of authorised representatives of TBL.

5.             You failed to take any action in relation to the trading activities of Hamish Boyd McLachlan (HBM) after you became aware of unauthorised transfers of options contracts and journal entries undertaken by HBM.

6.              You allowed TBL to breach ASX Business Rules.

7.             You failed to understand and acknowledge that there was a broker/client relationship between TBL and the individual RetireInvest clients.”

14                  Particulars of the alleged conduct were also given.

15                  There was also a schedule accompanying the notice of hearing sent to Hamish McLachlan.  It read as follows:

“1.      You improperly made or caused to be made in the client records of TBL four journal entries which had the effect of transferring funds from certain RetireInvest clients to other RetireInvest clients.

2.       You improperly transferred numerous options positions from your own trading account and the accounts of your associates to the accounts of RetireInvest clients which resulted in losses being incurred by the RetireInvest clients rather than by you or your associates.

3.             You conducted RetireInvest’s clients accounts in a manner which hid from them the true state of their accounts.

4.              You improperly traded on RetireInvest client accounts.”

16                  Particulars of the alleged conduct were given.

17                  Mr Malinaric also informed each of the appellants by his January letters that he might inspect and receive copies of the documents relied upon by the ASIC.  Each appellant has since availed himself of that offer and has also received a copy of the memorandum about him which was provided to Mr Malinaric.

18                  Further, by letter dated 25 February 1998, Hamish McLachlan’s solicitors asked for “copies of all other documents and materials in the custody or possession of the ASC which are or may be relevant to the matters before Mr Malinaric in the proposed banning order hearing.”  The ASIC replied by letter dated 10 March 1998, stating in part:

“The ASC takes the view that the substantive matter before Mr Malinaric is whether the conduct alleged in the notice of hearing dated 16 January 1998 (“the Notice”) amounted to a failure by Hamish McLachlan to perform efficiently, honestly and fairly the duties of a representative of a dealer, and if so, whether a banning order should be made against him.  I confirm that at the hearing of this matter, the ASC will be relying only on the conduct particularised in the notice.

In addition to the material contained in the four arch lever files accompanying the submission to Mr Malinaric and previously provided to you, the ASC has other material in its possession which supports the conduct alleged in the Notice. 

For example, the ASC has order forms, contract notes, options day book print outs and the like in relation to the option positions referred to in paragraph 2 of the Schedule attached to the Notice.  As Mr McLachlan admitted transferring the option positions, it seemed unnecessary to include every such document in the materials put to the delegate.  These documents are available for inspection by you if you wish.

In relation to the conduct alleged in paragraph 4 of the Schedule to the Notice, the ASC has statements from RetireInvest clients in addition to those contained in the materials before Mr Malinaric.  However, at the hearing, the ASC is relying only on those client statements contained in the material already provided to you.

So far as I am aware, there is no material in the custody or possession of the ASC which negatives the conduct alleged in the Notice of Hearing.”

19                  The order forms, contract notes, etc. were, it seems, later inspected by Hamish McLachlan’s legal representatives.

20                  Hamish McLachlan’s legal representatives subsequently requested the ASIC to make “discovery of documents in respect of the investigations into [TBL] and RetireInvest”.  That request was not met.  They also made an unsuccessful request to be permitted to use “the whole of the transcript [of the examination] of Mr Laming for the purposes of the banning order proceedings”, partial access having been permitted for other purposes.  (Mr Laming was the representative of RetireInvest who entered into arrangements with TBL pursuant to which it traded in shares and options on behalf of RetireInvest clients.)

21                  At preliminary hearings in February and March 1998, Hamish McLachlan sought general discovery of all documents in the ASIC’s possession relevant to the issues raised in the notice of hearing.  That was refused by Mr Malinaric on 2 April 1998.  His refusal was accompanied by a written statement of reasons which included the statements that (1) the [ASIC] “has identified and disclosed … the material which it considers relevant to issues”; (2) “[s]o far as the [ASIC] is aware, it has no information which is supportive of Mr McLachlan in relation to the conduct alleged against him”; (3) [i]f, in the course of the hearing, other material in the possession of the [ASIC] becomes relevant that too will be disclosed to Mr McLachlan; and (4) “discovery is not necessary in order to afford natural justice to Mr McLachlan”.  Mr Malinaric also rejected a submission made on behalf of Hamish McLachlan that he disqualify himself on the ground of apprehended bias.  The nature of that submission sufficiently appears from a submission to similar effect made by Malcolm McLachlan and discussed below. 

22                  At a preliminary hearing on 2 April 1998, Malcolm McLachlan requested Mr Malinaric (1) to adjourn the further hearing of the matter until the proceeding in the South Australian Supreme Court challenging the validity of the acquisition of material by and from the ASX was determined; (2) to direct “discovery” of all communications between the ASX and the ASIC; (3) to identify the material relied on by the ASIC in issuing the notice of hearing as well as the source of that material; and (4) to direct “discovery” of material placed by the ASIC before the Federal Court in a proceeding brought by the ASIC against Hamish McLachlan, not being a proceeding to which Malcolm McLachlan was a party.  (That proceeding arose out of transactions concerning clients of RetireInvest and in it the ASIC sought orders under s 1323 of the Corporations Law against Hamish McLachlan.)  Save that Mr Malinaric specifically identified the material upon which he relied in giving the notice of hearing, he declined to meet Malcolm McLachlan’s requests of 2 April.

23                  In his capacity as the ASIC’s Regional General Counsel, Mr Malinaric was the solicitor on the record for the ASIC in the proceeding against Hamish McLachlan.  Further, he was appointed the ASIC’s delegate not only to determine whether a banning order should be made against either or both of the McLachlans, but to determine whether a banning order should be made against Laming.

24                  It was on account of Mr Malinaric’s broad involvement in TBL and RetireInvest matters that Malcolm McLachlan’s solicitors wrote to him on 24 April 1998, stating, amongst other things, that:

“In your capacity as the solicitor advising the ASC you have no doubt perused material, spoken to potential witnesses, formed views and advised on aspects of the matter which makes it inappropriate that you should now hear our client’s matter on the principles of apprehended bias.  Those principles require that you should disqualify yourself because in the minds of reasonable persons there would be a substantial distrust that you may not be discharging your duty to decide the case.

My client requests that you disqualify yourself from further acting in the present proceedings.”

25                  Mr Malinaric responded by a letter dated 27 April 1998, stating in part

“With regard to the fact that I was the solicitor on the record for the ASC in the proceeding to which you refer in the sixth and seventh paragraphs of your letter, I note that I did not have the personal conduct of that proceeding.  As Regional General Counsel in South Australia, all court proceedings involving the ASC are conducted in my name and I have responsibility for their conduct.  While I am aware in a general way of the issues and material used in that application, the inferences that you draw in the first sentence of the seventh paragraph of your letter are not correct.

My being the solicitor on the record for the ASC in that application has not caused me to be actually biased in relation to the present hearing, and in my opinion no reasonable observer who was aware of all the relevant facts would have a reasonable perception that I might be biased.  Accordingly, I am not prepared to disqualify myself as the ASC’s delegate to hear this matter.”

26                  In an affidavit sworn 20 May 1998 Mr Malinaric deposed:

“Although I was the solicitor on the record for the ASC in the proceeding referred to in the Applicant’s solicitors’ letter of 24 April 1998, I did not have personal conduct of the proceeding.  I have not been involved in the ASC enquiry into the matters to which the proceeding related.  I have not spoken to any potential witnesses, advised on aspects of the matter nor was I personally involved in the decision to institute the proceedings.”

B.     PRINCIPAL SUBMISSIONS

27                  Malcolm McLachlan made application for an order of review on 29 April 1998.  Hamish McLachlan made application for order to review on 5 May 1998. The applications were heard together by Finn J and were dismissed by him on 31 July 1998.  The appellants appeal from those dismissals.  On the hearing of the appeal, counsel for Malcolm and Hamish McLachlan submitted that the rules of natural justice required Mr Malinaric to give access to all material in the possession of the ASIC which had been considered by the ASIC (even if not presently relied on) and which might cause the ASIC by its delegate to form a relevant belief in relation to the alleged conduct the subject of the hearing.  Counsel for Malcolm McLachlan also specifically sought access to the communications between the ASIC and the ASX relevant to the issue of the notice of hearing to McLachlan senior and the material placed before the Court by the ASIC in the proceeding relating to Hamish McLachlan.  Counsel for Malcolm McLachlan further submitted that the rules of natural justice required Mr Malinaric to disqualify himself from conducting any further hearing pursuant to the notice.

28                  It is convenient to deal first with the claim for access to all documents in the possession of the ASIC relevant to the subject-matter of the hearing.

C.     ARE THE APPELLANTS ENTITLED TO ACCESS TO OTHER MATERIAL IN THE ASIC’S POSSESSION?

29                  The claim depends upon the relevant statutory provisions.  Accordingly, I set out those provisions.  Sections 829 and 830 of the Corporations Law are in the following terms:

“829.  Subject to section 837, the Commission may make a banning order against a natural person (other than a licensee) if:

            …

(f)       the Commission has reason to believe that he or she has not performed efficiently, honestly and fairly the duties of:

(i)     a representative of a dealer; or

                   (ii)a representative of an investment adviser

            …

830(1)Where this Division empowers the Commission to make a banning order against a person, the Commission may, by written order, prohibit the person:

(a)    in any case – permanently; or

            (b)  except where the Commission is empowered by virtue of paragraph 828(c) or 829(e) to make the order – for a specified period;

            from doing an act as:

            (c)   a representative of a dealer;

            (d)   a representative of an investment adviser; or

            (e)   a representative of a dealer or of an investment adviser;

            whichever the order specifies

830(2)The Commission shall not vary or revoke a banning order except under section 831, 832, or 833.”

30                  Section 837 provides:

“837(1)The Commission shall not:

            …

            (e)   make, otherwise than by virtue of paragraph 828(a) or (d) or 829(a), (b) or (c), an order under section 830 against a person;

            …

            unless the Commission complies with subsection (2) of this section.

837(2)The Commission shall give the applicant, licensee or person, as the case may be, an opportunity:

(a)     to appear at a hearing before the Commission that takes place in private; and

(b)     to make submissions and give evidence to the Commission in relation to the matter.”

31                  Sections 57, 59 and 60 of the ASIC Law apply to a hearing conducted under s 837(2) of the Corporations Law.  Those provisions provide as follows:

“57(1)This section applies where a national scheme law of this jurisdiction requires the Commission to give a person an opportunity to appear at a hearing and to make submissions and give evidence to it.

57(2)The Commission shall appoint a place and time for the hearing and cause written notice of that place and time to be given to the person.

57(3)If the person does not wish to appear at the hearing, the person may, before the day of the hearing, lodge with the Commission any written submissions that the person wishes the Commission to take into account in relation to the matter concerned.

…

59(1)A hearing shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of national scheme laws of this jurisdiction and a proper consideration of the matters before the Commission permit.

59(2)At a hearing, the Commssion:

(a)    is not bound by the rules of evidence;

(b)    may, on such conditions as it thinks fit, permit a person to intervene; and

(c)     shall observe the rules of natural justice.

…

60            The Commission shall take into account:

(a)    evidence given, or a submission made, to it at a hearing; or

(b)    a submission lodged with it under section 57;

in making a decision on a matter to which the evidence or submission relates.”

32                  Plainly enough, when Mr Malinaric as the ASIC’s delegate conducted the hearing required by s 837(2) of the Corporations Law, he was obliged to conform to the rules of natural justice (ASIC Law s 59(2)) and to afford the appellants an opportunity to make submissions and give relevant evidence (Corporations Law s 837(2)).  That much is not in dispute.

33                  In written submissions, counsel for Hamish McLachlan submitted:

“The combination of the rules of natural justice (s 59(2) of the ASIC Act) and the right to be heard (s 837 of the Corporations Law) means that for the person to be able to address the primary issue (whether ASIC has reason to form a belief) the person needs to be advised of all of the relevant material which has been considered by ASIC and which therefore may contribute to the belief of ASIC.  The belief of ASIC must be based on the totality of the material available to it – not just that portion which ASIC has provided to the delegate or that portion which the delegate chooses to rely upon.”

34                  The critical question is whether the rules of natural justice require the ASIC to make available to the appellants all the material in its possession which might be relevant to the subject-matter of the hearing, even though it does not seek to rely on that material and it has not placed it before Mr Malinaric for the purpose of determining whether or not a banning order should be made.

35                  What is required by the rules of natural justice depends upon the circumstances of the particular case:  cf Russell v Duke of Norfolk [1949] 1 All ER 109 at 118 per Tucker LJ; Reg. v Commonwealth Conciliation and Arbitration Commission; ex parte Angliss Group (1969) 122 CLR 546 at 552-553; Kioa v West (1985) 159 CLR 550 at 584-585 per Mason J, 612-613 per Brennan J; and Boucher v Australian Securities Commission (1996) 71 FCR 122 at 127-8.  In the present case, the starting-point for determining what is required is, first, the statute constituting the ASIC and, secondly, the statute conferring the power to make a banning order.

36                  Subject to the ASIC Law, the ASIC has the general administration of the Corporations Law:  Corporations Law s 2.  In carrying out its functions and exercising its powers, including its administration of the Corporations Law, the ASIC must strive “to maintain, facilitate, and improve, the performance of companies, and of the securities markets and finance markets, in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy” and “to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors”:  see ASIC Law s 1(2)(a) and (b).

37                  Before a banning order can be made, the ASIC is required (by s 837 (1) and (2) of the Corporations Law) to give a hearing to the person who might be its subject.  As a preliminary matter, then, Mr Malinaric as the ASIC’s delegate had to determine whether or not the material before him might well warrant the conclusion that he had “reason to believe” that the appellants had not performed their duties as  representatives of TBL “efficiently, honestly and fairly”.  Having determined that it did, it was then incumbent on him to afford each appellant an opportunity to be heard in relation to the matter.  Mr Malinaric was required by s 57(2) of the ASIC Law to cause written notice of the place and time of hearing to be given.  At this stage there was no reviewable “‘decision’ … for which provision is made by or under a statute”:  cf Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 337.  The decision to afford a hearing and issue a notice of its time and place did not involve any “substantive determination”.  In so determining, Mr Malinaric had only to be of the view that the material before him might well warrant the conclusion that the appellants had relevantly failed in the performance of their duties and that he would therefore “seriously consider” (adopting the words of Young J in Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 675) the making of a banning order if the cogency of the material placed before him was undiminished after a hearing.  The rules of natural justice did not require the McLachlans to be notified that the hearings were under consideration, to be given an opportunity to be heard on the need for a hearing, or to have the material upon which Mr Malinaric acted made available to them:  cf Winter v Australian Securities Commission (1995) 56 FCR 107 at 114 per von Doussa J.  Any material relevant to the making of a banning order which, in the interests of fairness, was required to be made available might be appropriately provided at the next stage, i.e., at or prior to the hearing.  If it were to be said that the material before Mr Malinaric contained wrong or unreliable information or that its significance had been misconstrued, that might be said at the hearing. 

38                  The next stage under the Corporations Law is a private hearing at which each of the appellants is given an opportunity to appear and to make submissions and give evidence “in relation to the matter”:  Corporations Law s 837(2).  It is only after the hearing that the decision-maker (here Mr Malinaric) is called upon to decide whether he, as delegate for the ASIC, has “reason to believe” that Malcolm or Hamish McLachlan (as the case may be) “has not performed efficiently, honestly and fairly the duties” of a representative of a dealer.  If he decides that he has reason for that belief, then he is called upon to decide whether it would be proper to make a banning order.

39                  The duties cast upon Mr Malinaric are plainly of an administrative nature.  The statutory purpose of the hearings required by s 837 is plain:  it is to enable Mr Malinaric as delegate for the ASIC to decide fairly whether the statutory power to make a banning order should be exercised, in this case, against the appellants.

40                  Whilst the power to make a banning order is limited to the circumstance where the ASIC “has reason to believe” that a person has not performed the duties of a representative of a dealer or of an investment adviser “efficiently honestly and fairly”, the Corporations Law leaves to the ASIC the task of determining what are to constitute the circumstances which, if established to the ASIC’s satisfaction, would afford reason for that belief.  The statute also leaves to the ASIC the task of determining what it is to regard as considerations, relevant and irrelevant, with regard to the ultimate question whether, if the ASIC has reason for the relevant belief, a banning order ought to be made:  cf Laycock v Forbes (1997) 25 ACSR 659 at 671.  In relation to both tasks, the nature of the power to be exercised and the scope and purpose of the statute place some implied limitations on the decision-maker:  cf Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 at 40.  As the Full Court of this Court observed in Boucher’s Case at 130 the power to make a banning order

“is one of the powers conferred by the Corporations Law on the Commission to enable it, by the exercise of its supervisory functions, to discharge the obligation cast on it by s 1(b) [the ASC Law] to maintain the confidence of investors in the securities market by ensuring adequate protection for such investors.  In deciding whether to exercise this particular power, the delegate was thus required to have regard to the public interest.”

41                  At the same time, the outcome of the hearings, if adverse to either or both appellants, will seriously affect their livelihood.  As appears from the schedule to each notice of hearing, the allegations made against each appellant impugn his conduct specifically, with the consequence that each appellant’s occupational competence, ethics and reputation are very much at issue.

42                  Bearing in mind the relevant statutory provisions, the nature of the decision to be made, the interests of the individuals concerned, the relevant public interest and, generally, the circumstances of the case, can it be said that the procedure adopted or to be adopted by the ASIC by its delegate fails to conform to the rules of natural justice?  Cf Kioa v West (1985) 159 CLR 550 at 584-585 per Mason J and 614, 619 per Brennan J.  In these circumstances, the principal requirement of the rules of natural justice (or procedural fairness) is to bring to the attention of each of the appellants the critical issues on which the decision whether to make a banning order is likely to turn.  Such critical issues include the matters adverse to the interests of Malcolm or Hamish McLachlan (as the case may be) which Mr Malinaric is considering taking into account in making his decision on the basis that those matters appear to be based on relevant and credible information which is significant to the ultimate decision to be made.  The purpose of the requirement is to afford a person in the position of the appellants an adequate opportunity to respond.  See Kioa v West (1985) 159 CLR 550 at 587 per Mason J, 602 per Wilson J, 628-629 per Brennan J and 634 per Deane J; National Companies and Securities Commission v News Corporation Limited (1984) 156 CLR 296 at 316 per Gibbs CJ and 324 per Mason, Wilson and Dawson JJ; and Chu v Minister for Immigration, Local Government, and Ethnic Affairs (1993) 45 FCR 540 at 546.

43                  In submitting that the rules of natural justice required the ASIC to afford the appellants access to all the material in its possession which might bear upon the belief referred to in s 829 of the Corporations Law, counsel for the appellants particularly relied upon passages in the judgment of Brennan J in Kioa v West (1985) 159 CLR 550 at 628-629.  Brennan J said in part:

“A person whose interests are likely to be affected by an exercise of power must be given an opportunity to deal with relevant matters adverse to his interests which the repository of the power proposes to take into account in deciding upon its exercise … .  The person whose interests are likely to be affected does not have to be given an opportunity to comment on every adverse piece of information, irrespective of its credibility, relevance or significance.  Administrative decision-making is not to be clogged by enquiries into allegations to which the repository of the power would not give credence, or which are not relevant to his decision or which are of little significance to the decision which is to be made.  Administrative decisions are not necessarily to be held invalid because the procedures of adversary litigation are not fully observed. … Nevertheless in the ordinary case where no problem of confidentiality arises an opportunity should be given to deal with adverse information that is credible, relevant and significant to the decision to be made.  It is not sufficient for the repository of the power to endeavour to shut information of that kind out of his mind and to reach a decision without reference to it.  Information of that kind creates a real risk of prejudice, albeit subconscious, and it is unfair to deny a person whose interests are likely to be affected by the decision an opportunity to deal with the information.  He will be neither consoled nor assured to be told that the prejudicial information was left out of account.”

44                  His Honour was there speaking of information adverse to the interests of those concerned upon which the decision-maker proposed to rely, believing it to be relevant, credible and significant.  These passages do not support the appellants’ submission that the rules of natural justice require them to have access to all material bearing on the subject-matter of the hearing within the possession of the ASIC (or in some way considered by officers of the ASIC, although not by Mr Malinaric).  There is, moreover, no support for the proposition for which the appellants contend in such cases such as Boucher v ASC (1996) 71 FCR 122, Laycock v Forbes (1997) 25 ACSR 659 or Winter v ASC (1995) 56 FCR 107.

45                  In Laycock v Forbes, Goldberg J expressly referred to the need to disclose the material upon which the decision-maker proposed to rely “so that the relevant person can respond to it” (25 ACSR at 667).  If there were any doubt about what his Honour intended, that doubt is dispelled by his Honour’s reference to Mahon v Air New Zealand Ltd [1984] AC 808 at 821 where their Lordships affirmed that a person represented at the inquiry in question and who might be affected adversely by a finding “should not be left in the dark as to the risk of the finding being made and thus deprived of any opportunity to produce additional material of probative value which, had it been placed before the decision-maker, might have deterred him from making the finding …”.  The same point was made in Winter v ASC (1995) 56 FCR 107 at 114.

46                  A principal purpose of the hearing required by s 837(2) of the Corporations Law is to afford the person against whom a banning order is proposed an opportunity to advance argument and give evidence in answer to the material thought by the decision-maker to be adverse and properly to be taken into account in reaching the ultimate decision:  cf Boucher v ASC (1996) 71 FCR 122 at 131 and Laycock v Forbes (1997) 25 ACSR 659 at 665.  Indeed, the Corporations Law requires that a person not only be afforded an opportunity to be heard but also an opportunity to make submissions and give evidence “in relation to the matter”, being the matter the subject of inquiry:  Corporations Law s 837(2).  If the procedure set down by s 837(2) of the Corporations Law and s 59(2) of the ASIC Law is designed (as I think it is) to meet the principal requirement of the rules of natural justice, then “it must be clear that the statutory procedure is insufficient to achieve justice and that to require additional steps would not frustrate the apparent purpose of the legislation” before it is appropriate for the Court to find that natural justice calls for more:  Wiseman v Borneman [1971] AC 297 at 308; and Kioa v West (1985) 159 CLR 550 at 614-5 per Brennan J.

47                  The appellants have submitted that they will be subject to impermissible prejudice if they are not permitted access to all the documents in the ASIC’s possession which may bear upon the subject-matter of the hearing.  The strength of that submission depends upon the following three propositions.  First, the criterion for a banning order is whether the ASIC has reason to hold the belief described in s 829(f).  Secondly, whether or not the ASIC has such a belief depends on all the relevant material in the possession of the ASIC; and thirdly, in order to meet the case against him, each appellant requires access to all such material.  The argument runs in the following way in relation to Hamish McLachlan.  (As I have said, Malcolm McLachlan adopted Hamish McLachlan’s submissions but did not, I think, provide similar detail.)  The conduct of the McLachlans which is the subject of the inquiry relates to “trading in shares and options on the accounts of the clients of … Laming” and, so counsel for Hamish McLachlan says, the allegations in relation to McLachlan junior raise issues concerning Laming’s instructions and authority and the consent and investment objectives of RetireInvest clients.  Those matters have already been, so counsel says, the subject of investigation by the ASIC and that being so, natural justice requires, so counsel submits, the disclosure of that information.  In my view, the submission misconceives the operation of the relevant statutory provisions and what is required by the rules of natural justice in the circumstances of these cases.

48                  Plainly enough, Mr Malinaric as delegate of the ASIC is required to be satisfied, after considering any submissions and evidence placed before him by the appellants, that he has reason to hold the belief described in s 829(f) of the Corporations Law before any occasion to exercise the power conferred by s 830 can arise.  As I have already noted, however, it is for the ASIC to determine the nature of the circumstances which, in its view, will afford “reason for that belief”, subject to any limitations expressly or impliedly arising from statute and the usual principles of judicial review:  cf Minister for Aboriginal v Peko-Wallsend Limited (1986) 162 CLR 24 at 41.  Further, it is for the ASIC to determine the material on which it proposes to rely to support the existence of those circumstances in the particular case.  Having done this, the ASIC is required by s 837(2) of the Corporations Law to afford to the applicant, licensee or person opportunities to appear at a hearing, to make submissions and to give evidence “in relation to the matter” (including the material which, prior to the hearing, ASIC regards as adverse).  If the matters or the material change prior to the ultimate decision, the rules of natural justice require the person to be informed and to be afforded an opportunity to respond.  If it is for the ASIC to identify the matters and the material on which it relies as giving it the “reason to believe” referred to in s 829 of the Corporations Law, then the only matters and material which the rules of natural justice require to be disclosed to the appellants are those matters and material upon which the ASIC relies as being relevant, credible and significant to the ultimate decision.  The interests of fairness do not require other material in the ASIC’s possession and touching the subject-matter of the hearing to be disclosed, because it is not relied upon as adverse to the appellants’ interests.

49                  Moreover, absent any allegation of bad faith (and none is made by the appellants), it may be inferred that the material presently before Mr Malinaric is all the material which the ASIC regards at this stage of the process as being relevant, credible and significant to the ultimate decision.  In this circumstance, I can discern no impermissible prejudice to the appellants flowing from the fact that they are to be denied access to material in the ASIC’s possession touching the subject-matter of the hearing which is not relied upon by it.  Cf Aboriginal Legal Service Ltd v Australian Securities Commission (1996) 22 ACSR 357.

50                  Counsel for the appellants submitted that if the propositions advanced were not accepted, then the ASIC would be permitted to “quarantine” information in its possession.  The appellants would be denied a chance to identify other relevant and even exculpatory material in the possession of the ASIC.  This would, so counsel submitted, constitute a breach of the duty to act fairly “in that the ASIC as prosecutor has selected what material should be put to the delegate and has failed to make available to [the McLachlans] relevant material which is in its possession”.  Absent any allegation of bad faith on the ASIC’s part, I do not think that it offends the rules of natural justice to place information upon which the ASIC does not rely and which it does not regard as relevant, credible and significant “in quarantine”.  Indeed, the procedure adopted in these cases conforms with those rules:  the process adopted by the ASIC is designed to ensure that the material relied on by Mr Malinaric in making the ultimate decision is limited to that which has been brought to the relevant appellant’s attention and in respect of which he has had an opportunity to respond.  That end would, of course, have been defeated had Mr Malinaric participated in the earlier investigatory process.

51                  I agree with Finn J that:

“The fact that Mr Malinaric is acting as delegate in a number of apparently related matters may, potentially at least, put him in a position where a duty to disclose such as Brennan J referred to in Kioa v West … may arise.  But whether it does is a matter of fact in the particular circumstances given the information acquired in one capacity and the actual decision to be taken in another.  It does not arise simply from what I call for convenience, the dual or multiple roles discharged.”

52                  By seeking access to all documents relating to the subject-matter of the hearing, the appellants seek, in effect, to conduct a search into the ASIC’s records about them.  That is not a purpose sought to be met by the rules of natural justice.

53                  The ASIC by Mr Malinaric as its delegate has thus far afforded the appellants the opportunities required by statute, including the opportunity to answer the material considered adverse to their interests.  There is no basis for believing that the ASIC, by Mr Malinaric, would not make available any other documents or inform the relevant appellant of any other adverse information which may subsequently be considered by Mr Malinaric to be relevant, credible and significant.  Indeed the ASIC and Mr Malinaric have stated that they are well aware of their continuing obligation to do so.

54                  At first instance, Malcolm McLachlan had, as already noted, specifically sought access to all the material in the possession of the ASIC deriving from the ASX.  It was said that this was illegally obtained material and that it was not open to the ASIC to rely on it.  I agree, for the reasons given by Finn J, that that submission must be rejected.  Moreover, as noted above, by the time the appeal came to be heard, the Full Court of the Supreme Court of South Australia had upheld an appeal from the Chief Justice dismissing the claim that the ASX material had been unlawfully obtained.

55                  Malcolm McLachlan also specifically sought “discovery” of material that was put before the Federal Court in the proceeding brought by the ASIC against Hamish McLachlan.  It suffices to say that it was not suggested by the appellant that Mr Malinaric as the ASIC’s delegate was proposing to treat any such material as adverse to the interests of Malcolm McLachlan upon the basis that it was relevant, credible and significant in relation to any decision concerning him and there is, in consequence, no basis for finding that material to be “discoverable” to Malcolm McLachlan.

D.    IS MR MALINARIC DISQUALIFIED UPON THE GROUND OF BIAS?

56                  Counsel for Malcolm McLachlan made a further submission that McLachlan senior or the public “might entertain a reasonable apprehension that Mr Malinaric might not bring an impartial and unprejudiced mind” to deciding whether or not a banning order should be made:  see Livesey v New South Wales Bar Association (1983) 151 CLR 288 at 293-294 applying R v Watson; Ex parte Armstrong (1976) 136 CLR 248 at 258-263.  This states the test of apprehended bias:  see Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375.  The possibility arose, so it was said, from the terms of the letter of 28 January 1998 which accompanied the notice of hearing sent to Malcolm McLachlan and from the fact that Mr Malinaric had been the solicitor on the record in the Federal Court proceeding involving Hamish McLachlan.

57                  It is, of course, accepted by all parties that prior to giving the notice of hearing of 28 January 1998, Mr Malinaric had read the memorandum of 10 December 1997 concerning Malcolm McLachlan and the contents of the eight lever arch files which accompanied it.  The purpose of his so doing was to enable him to determine whether there was any call for the application of s 837(2) of the Corporations Law.  If there was, then a notice of a hearing was required to be given to Malcolm McLachlan in accordance with s 57(2) of the ASIC Law.  As I have said, in my view, in determining whether the opportunities referred to in s 837(2) were to be given, Mr Malinaric was required only to reach the view that he would “seriously consider” the making of a banning order if the cogency of the material against Malcolm McLachlan was undiminished after the proposed hearing and consideration of any submissions and evidence.  Mr Malinaric’s letter of 28 January 1998 is entirely consistent with that state of mind, for in it he says only “[o]n the basis of the information before me I have reason to believe that you may not have performed efficiently, honestly and fairly the duties of a representative of” TBL.  It is only recital E of the notice of hearing which tends to support the view that he had reached any higher degree of confidence as to Malcolm McLachlan’s failures.  But recital E falls to be construed in light of the whole of the notice of which it forms part.  The express purpose of the notice of hearing was to notify its recipient that there was to be a hearing “to ascertain whether or not it is appropriate to make a banning order prohibiting you from doing an act as a representative of a dealer, an investment adviser or both, for a specified period or permanently”. It is plain enough from this that Mr Malinaric as signatory to the notice was not stating that his mind had been made up on the issues concerning Malcolm McLachlan.  Read as a whole, the notice conveyed no more than that it was his view that if the information to which he referred in his letter remained undiminished in cogency, then there was a risk that he would find that Malcolm McLachlan had failed in his duties as a representative of TBL and that he would make a banning order against him.  By virtue of s 837(2) of the Corporations Law and s 59(2) of the ASIC Law, Mr Malinaric was bound to notify McLachlan of that risk and of the adverse material upon which he was proposing to rely.  It cannot be said that in fulfilling his obligations, Mr Malinaric created a reasonable apprehension of bias:  cf Storey v National Companies and Securities Commission (1988) 6 ACLC 560 at 573 per Young J.  If the submissions of counsel for Malcolm McLachlan were correct on this score, every decision-maker who gave notice of the adverse matters on which he was proposing to rely would be susceptible to a charge of the disqualifying appearance of pre-judgment.

58                  I agree with Finn J that Winter v ASC (1995) 56 FCR 107 at 115 is distinguishable.  In that case, von Doussa J held that if the decision-maker who decides that a notice to show cause should be given under s 600(2) of the Corporations Law were also to conduct the subsequent hearing under s 600(3), a fair-minded member of the public might entertain a reasonable apprehension of bias.  The reason for that conclusion lies in the terms of s 600, especially s 600(2).  The terms of a notice under s 600(2) require the recipient to “to show cause why [the ASIC] should not serve on [him] a notice under” s 600(3).  A notice under s 600(3) operates to prohibit a person from managing a corporation.  As von Doussa J said, at p 115, a decision to give a s 600(2) notice “reflects a prima facie conclusion that in all the circumstances it is appropriate that the director be prohibited from managing a corporation”.  As noted above, the determination that is appropriate to afford the opportunities referred to in s 837(2) of the Corporations Law and the giving of a notice in accordance with s 57(2) of the ASIC Law merely put the person concerned on notice that he or she is at risk if the cogency of the material adverse to his or her interests remains undiminished following a hearing, the receipt of submissions and further evidence.  As von Doussa J observed in Winter’s Case at 117-118, no case of apprehended bias is shown merely because the decision-maker has read relevant material prior to a hearing and has formed “tentative views as to what the issues will be, and tentative views about those issues”.  His Honour said at 118:

“Again it is important to note that the expression of a tentative view gives no ground for suspecting that the decision-maker will not fairly consider with an open mind additional material and argument, or put out of mind any material later shown to be wrong or irrelevant.

…[I]t is entirely consistent with an open mind being brought to the task at hand that the preliminary and tentative view should be expressed.”

59                  Counsel for Malcolm McLachlan also relied on the fact that, in his capacity as Regional General Counsel, Mr Malinaric had been the solicitor on the record in the proceeding in this Court involving Hamish McLachlan.  It is not, I think, established by that fact (or, at least, not firmly) that a fair-minded person might have a reasonable apprehension that Mr Malinaric might have pre-judged the issues arising under s 829(f) of the Corporations Law in relation to Malcolm McLachlan:  cf Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 100.  Further, in uncontested evidence, Malinaric stated:

“Although I was the solicitor on the record for the ASC in the proceeding … I did not have personal conduct of the proceeding.  I have not been involved in the ASC enquiry into the matters to which the proceeding related.  I have not spoken to any potential witnesses, advised on aspects of the matter nor was I personally involved in the decision to institute the proceedings.”

60                  I reject the submission that a fair-minded person might entertain a reasonable apprehension of bias on Mr Malinaric’s part on the grounds mentioned above.

61                  Before Finn J, it was said that the fact that Mr Malinaric had refused requests for adjournments and discovery supports the submissions as to bias.  This was, for good reason, not pursued on appeal.

62                  On the hearing of the appeal, counsel also placed some reliance on the fact that Mr Malinaric as the ASIC’s delegate had made a banning order against Laming.  Not only was this matter not relied on before the judge below, but there was no basis shown upon which it might be thought that the making of a banning order against Laming gave rise to a reasonable apprehension of bias against Malcolm McLachlan.  There was simply no evidence about the decision to make a banning order against Laming.

63                  For these reasons, I would dismiss these appeals with costs.

Associate:

Dated:              17 March 1999