FEDERAL COURT OF AUSTRALIA

Australian Securities and Investment Commission

v Citigroup Global Markets Australia Pty Limited (ACN 113 114 832)

(No. 1) [2006] FCA 845

PRACTICE AND PROCEDURE– discovery – application by Citigroup under s12HB(2) of Australian Securities and Investment Commission Act 2001 (Cth) – whether document “prepared by an officer” of the Australian Securities and Investment Commission – whether document “tends to establish the case of” the defendant

Australian Securities and Investment Commission Act 2001 (Cth) – s 12HB

Arnotts Limited v Trade Practice Commission (No 1) (1989) 21 FCR 297 referred to

Australian Competition & Consumer Commission v FFE (2003) ATPR 41-967 referred to

Australian Competition & Consumer Commission v Rural Press Ltd [1999] FCA 1847 referred to

Australian Competition and Consumer Commission v McMahon Service Pty Limited [2004] FCA 353 referred to

Trade Practices Commission v TNT Management Pty Limited (1982) 39 ALR 665 referred to

Australian Securities and Investment Commission  v Citigroup Global Markets Australia Pty Limited (ACN 113 114 832)

NSD 651 of 2006

JACOBSON J

30 JUNE 2006

SYDNEY

THE COURT ORDERS THAT:

1.          The Respondent’s notice of motion filed on 26 June 2006 is dismissed with costs.

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

REASONS FOR JUDGMENT

Introduction

1                     In these proceedings, ASIC claims that the defendant, Citigroup Global Markets Australia Pty Limited, breached fiduciary duties to its client, Toll Holdings Limited, and engaged in insider trading by dealing in shares in Patrick Corporation on 19 August 2005.

2                     Prior to that date Toll had retained Citigroup to provide corporate advisory services to Toll including advice in relation to a proposed takeover by Toll of Patrick.

3                     An essential issue in relation to the three breach of fiduciary duty counts brought under section 912A(1) of the Corporations Act 2001 (Cth) by ASIC is whether Citigroup revealed to Toll that despite the retainer, Citigroup reserved to itself the right to engage in trading on its own account in Patrick shares.

4                     Another essential issue is whether Citigroup had in place adequate arrangements for the management of conflicts of interest that may arise once Citigroup had been retained by Toll to act as its adviser on the proposed takeover of Patrick. 

5                     Similarly, an issue will arise as to whether Citigroup had in operation arrangements that could reasonably be expected to ensure that inside information about the Patrick's takeover was not communicated to the person or persons at Citigroup who decided to deal in Patrick shares on 19 August 2005.  That is to say, did Citigroup have in place adequate "Chinese Wall" arrangements in accordance with section 1043F of the Corporations Act in answer to the claim of insider trading under section 1043A(1).

Citigroup’s Application for Documents pursuant to 12HB(2) of the ASIC Act

6                     Prior to the commencement of these proceedings, ASIC obtained under section 19 of the ASIC Act transcripts of examinations of individuals connected with Citigroup as well as a transcript of examination of an officer of Toll, Mr Chatfield. 

7                     By notice of motion filed on 26 June 2006, Citigroup seeks an order under section 12HB(2) of the ASIC Act directing ASIC to comply with requests made by Citigroup for the production of certain documents referred to in section 12HB(1) of that Act.

8                     It appears that the only document which falls within the request is the transcript of Mr Chatfield's examination. 

9                     Two issues arise on the motion.  First, whether the transcript was "prepared by an officer" of ASIC.  Second, whether the transcript "tends to establish the case" of Citigroup in defence of these proceedings. 

10                  Section 12HB of the ASIC Act provides as follows:

“(1) If:

(a)   a proceeding is instituted against a person under section 12GD; or

(b) an application is made under section 12GLA or 12GLB or subsection 12GM(2) or 12GN(1) for an order against a person;

ASIC must, at the request of the person and upon payment of the prescribed fee (if any), give to the person:

(c)a copy of every document that has been given to, or obtained by, ASIC in connection with the matter to which the application, notice or proceeding relates and tends to establish the case of the person; and

(d) a copy of any other document in ASIC's possession that comes to ASIC's attention in connection with the matter to which the application, notice or proceeding relates and tends to establish the case of the person;

not being a document obtained from the person or prepared by an officer or professional adviser of ASIC.

(2) If ASIC does not comply with a request under subsection (1), the Court must, subject to subsection (3), upon application by the person who made the request, make an order directing ASIC to comply with the request.

(3) The Court may refuse to make an order under subsection (2) in respect of a document or part of a document if the Court considers it inappropriate to make the order by reason that the disclosure of the contents of the document or part of the document would prejudice any person, or for any other reason.

(4) Before the Court gives a decision on an application under subsection (2), the Court may require any documents to be produced to it for inspection.

(5) An order under this section may be expressed to be subject to conditions specified in the order.”

11                  In Trade Practices Commission v TNT Management Pty Limited (1982) 39 ALR 665, Bowen CJ considered the construction and effect of section 157 of the Trade Practices Act 1974  which is relevantly in similar terms to section 12HB of the ASIC Act. 

12                  His Honour said at 670 that:

“The intention disclosed by the wording of section 157… is that a corporation is to be given fair treatment, in the sense that it is to be given copies of documents which the Commission has and which would, speaking broadly, support the corporation's case.”

13                  His Honour compared these obligations with those placed upon a prosecutor. 

14                  The analogy which Bowen CJ drew with a prosecutor's obligations was doubted by Selway J in Australian Competition and Consumer Commission v McMahon Service Pty Limited [2004] FCA 353 at [21].  Nevertheless, TNT has been followed by a Full Court in Arnotts Limited v Trade Practice Commission (No 1) (1989) 21 FCR 297 at 302. 

15                  In TNT Bowen CJ said at 670 that the words "prepared by an officer of the Commission" refer to a document drawn up by the officer whether or not any particular contribution of ideas is evident in the contents of it.

16                  His Honour said that “this appears to be the ordinary meaning of the word ‘prepare’ in relation to writings or documents.  His Honour went on to say that: “if something more than physical authorship is required it is difficult to define where the line should be drawn”.  He observed that “[w]hatever test would have to be applied it would seem to lead to an awkward inquiry of the intellectual contribution of the officer”. 

17                  His Honour then turned to the question of whether a document tends to establish the case.  He said at 671 that in his opinion these words do not mean that the document must tend to place the case of the corporation beyond dispute.  It is sufficient if the document supports the case of the corporation and so tends to establish the case.

18                  However, a document which might suggest a line of inquiry which would be of assistance to a corporation in conducting its case did not, in his Honour's view, answer the necessary statutory description.  His Honour said that he considered that:

“section 157 should not be narrowly construed.  If a document tends to impeach the plaintiff's case it tends to establish the defendant's case within the meaning of the section.”

19                  In McMahon an issue arose as to whether a witness statement, which was drafted by an officer of the ACCC, typed at the ACCC, and signed by the witness, was “prepared” by an officer of the Commission within the meaning of section 157 of the Trade Practices Act.

20                  Selway J followed the decision of Mansfield J in Australian Competition & Consumer Commission v Rural Press Ltd (1999) 96 FCR 141, where the question of whether a document has been prepared was determined by inquiring whether it had been physically prepared by an officer of the Commission.  Selway J followed this approach as one which was not a plainly wrong interpretation notwithstanding the fact that this approach can on occasions produce unusual results; see at [17].

21                  The transcript of examination of Mr Chatfield was produced to me for inspection in accordance with section 12HB(4) of the ASIC Act.  The transcript records that it was produced by “ComputerReporters”.  It was signed by Mr Chatfield as an accurate record of the examination. 

22                  In my view the transcript was not prepared by an officer of ASIC.  First, it was not physically prepared by ASIC.  Thus, in accordance with the approach taken by Mansfield J and Selway J, it was not prepared in the sense required by the statute.  Second, it cannot be said to have been drawn up by the officer in accordance with the approach to construction taken by Bowen CJ in TNT. 

23                  In my view it is unnecessary to decide where the line ought to be drawn if something more than physical authorship is required, because whatever approach is taken within the authorities to which I have referred the transcript was not prepared by an officer of ASIC.  This approach also seems to be in accordance with the approach taken by Wilcox J in Australian Competition & Consumer Commission v FFE (2003) ATPR 41-967 at [60] – [61]. 

24                  Mr Stevenson SC, for ASIC, submitted that the words "prepared by" in section 12HB mean or include a document which the officer has caused to be prepared.  I reject this approach to construction as inconsistent with the authorities to which I have referred.

25                  I turn then to the question of whether the transcript "tends to establish" Citigroup's case.  I have read the whole of the transcript in order to determine this question.  In my opinion there is nothing in the document which can be said to support Citigroup's case, nor can it be said that there is anything in the statement that tends to impeach ASICs case.  The most that can be said is that the transcript suggests lines of inquiry which may be of assistance to Citigroup in conducting its case.  That does not answer the statutory test. 

26                  Nevertheless it does not follow that Citigroup will be deprived of assess to the transcript in due course.  ASIC has conceded that the document will be discoverable, but the effect of my decision will be that production will be delayed till the date by which ASIC is required to give discovery.

Conclusion

27                  It follows that the motion must be dismissed with costs.

Associate:

Dated:              3 July 2006