FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Albarran (No 2)

[2008] FCA 386

CORPORATIONS – defendant refused to answer questions before the Companies Auditors and Liquidators Disciplinary Board – defendant to be punished as if guilty of contempt of court – principles for imposing punishment – defendant fined $20,000 – order for indemnity costs

Australian Securities and Investments Commission Act 2001 (Cth) ss 217, 219

Federal Court of Australia Act 1976 (Cth) s 31

Judiciary Act 1903 (Cth) s 24

Anderson v Hassett (No 2) [2007] NSWSC 1444 applied

Australian Securities and Investments Commission v Wynhoven (2004) 51 ACSR 384 distinguished

Australian Securities & Investments Commission v Pappas [2007] FCA 672 applied Australasian Meat Industry Employees’ Union v Mudginberri Station Proprietary Limited (1986) 161 CLR 98 referred to

BHP Steel (AIS) Pty Limited v Construction, Forestry, Mining and Energy Union [2001] FCA 336applied

Deputy Federal Commissioner of Taxation v Hickey (1999) 99 ATC 5124 referred to

EMI Records Ltd v Ian Cameron Wallace Ltd [1982] 2 All ER 980 referred to

Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (FCA, French J, 3 May 1991, unreported) referred to

Four Seasons Gutter Protection Pty Limited v Leafbusters Pty Limited (No 2) [2004] FCA 1402distinguished

National Australia Bank Ltd v Juric (No 2) [2001] VSC 398 referred to

Siminton v Australian Prudential Regulation Authority (2006) 152 FCR 129 referred to

Witham v Holloway (1995) 183 CLR 525 referred to

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v RICHARD ALBARRAN (NO 2)

NSD 1399 of 2007

JACOBSON J

27 march 2008

SYDNEY

THE COURT ORDERS THAT:

1.      The defendant pay to the Commonwealth of Australia the sum of $20,000 by way of penalty or fine, pursuant to s 219(7)(b) of the Australian Securities and Investments Commission Act 2001 (Cth), for his refusal or failure to answer 37 questions that were put to him by the Companies Auditors and Liquidators Disciplinary Board.

2.      The defendant pay the costs of the proceeding, including the costs incurred prior to the substitution of the Australian Securities and Investments Commission as plaintiff, on an indemnity basis.

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

REASONS FOR JUDGMENT: PENALTY

Introduction

1                     On 26 February 2008 I ordered, pursuant to s 219(7)(b) of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”), that Mr Albarran be punished in the same manner as if he had been guilty of contempt of Court, for his refusal or failure to answer 37 questions that were put to him by the Panel Chairman of the Companies Auditors and Liquidators Disciplinary Board. 

2                     I have now heard submissions as to the punishment to be imposed.  Counsel for ASIC submitted that the circumstances of this case call for the imposition of a substantial fine.  ASIC also seeks an order that Mr Albarran pay its costs on an indemnity basis.

3                     Unless otherwise indicated, all paragraph references in these reasons refer to my decision in Australian Securities and Investments Commission v Albarran [2008] FCA 147.

The contempt power and the punishment options

4                     Section 219(7) of the ASIC Act confers power on the Court to punish, as on contempt, a person who fails to attend before the Board, or who fails to answer a question when required to do so by the Chairman.

5                     As a statutory analogue for the exercise of the power to punish for contempt, no question arises under s 219(7) as to the Court’s power of punishment.  In any event, the Court’s power to punish for contempt is well-established:  Siminton v Australian Prudential Regulation Authority (2006) 152 FCR 129 at [74].

6                     In Siminton, a Full Court observed at [74] that where a natural person is the contemnor, the Court has power to impose a fine, order that the person be committed to serve a term of imprisonment, or to order both a fine and imprisonment.  The statutory sources of the power are s 31 of the Federal Court of Australia Act 1976 (Cth), s 24 of the Judiciary Act 1903 (Cth) and rule 11.04 of the High Court Rules.

7                     The distinction between civil and criminal contempt is no longer of any practical significance: Witham v Holloway (1995) 183 CLR 525 at 534.  Nevertheless, a number of relevant principles are to be found in their Honours’ analysis of the distinction that was previously thought to underlie the difference between the civil and criminal species of contempt.

8                     First, disobedience to a court order or breach of an undertaking to a court amounts to a criminal contempt if it involves deliberate defiance or is contumacious: Witham v Holloway at 530.  A contempt which is characterised in this way is therefore at the more serious end of the spectrum, although any contempt is a serious matter.

9                     Second, proceedings for breach of an order or undertaking have the effect of vindicating judicial authority, and a remedial or coercive effect: Witham v Holloway at 533.

10                  Third, as was earlier observed by the High Court in Australasian Meat Industry Employees’ Union v Mudginberri Station Proprietary Limited (“Mudginberri”) (1986) 161 CLR 98 at 108, the punitive and remedial objects of the exercise of the contempt power are inextricably intertwined: Witham v Holloway at 533-534.

11                  In Mudginberri their Honours referred to the “strong stream” of authority for the proposition that a fine may be imposed when the contempt consists of wilful disobedience of a court order, at least in the sense that the disobedience is not “casual, accidental or unintentional”: 106-107, 109, 112-113.

12                  Reference was also made in Mudginberri to the underlying rationale of every exercise of the contempt power, namely the need to uphold and protect the effective administration of justice.  Their Honours quoted from the then current edition of the seminal work on the law of contempt, Borrie & Lowe’s Law of Contempt (2^nd ed, 1983): if a court lacked the means to enforce its orders, or if its orders could be disobeyed with impunity, the administration of justice would be brought into disrepute. 

13                  In Deputy Federal Commissioner of Taxation v Hickey (1999) 99 ATC 5124 at [35], Carr J said:

Any contempt of court is serious.  The seriousness transcends matters such as the personal dignity of the judiciary, or the rights in this case of the Commissioner as a litigant in this Court.  The offence involves interference with the effective administration of justice, by impeding and perverting its course: Johnson v Grant (1923) SC 789 at 790per Lord President Clyde.  Contempt of court is a matter of basic and public significance.  Unless the laws of contempt are properly enforced our whole system of justice is at risk.

14                  In BHP Steel (AIS) Pty Limited v Construction, Forestry, Mining and Energy Union  [2001] FCA 336, Kiefel J said at [3]:

Penalties for contempt of Court orders necessarily recognise that the Court’s authority must be vindicated, and that there is a public interest in compliance with all orders of the Court: Witham v Holloway (1995) 183 CLR 525, 533.  Orders for penalties recognise the need to deter not only the defaulting party, but others who might be like-minded.

15                  The statutory scheme which underlies the conferral of power on the Court under
s 219(7)(b) recognises that it is through the exercise of judicial power under Ch III of the Constitution that the authority of the Board is to be vindicated.

16                  The Board is furnished with a very significant disciplinary and regulatory function in the exercise of its power under s 1292 of the Corporations Act 2001 (Cth)to cancel or suspend the registration of an auditor or liquidator.

17                  In aid of its disciplinary function the Board is given power in s 219 of the ASIC Act to summons witnesses and to require them to answer questions.

18                  As Emmett J remarked, in a different statutory context, in Australian Securities & Investments Commission v Pappas [2007] FCA 672 at [23], the power to examine witnesses is a significant one which is conferred in the public interest.  His Honour continued:

Members of the public should understand that failure to comply with orders of the Court requiring compliance with the Commission’s requirements in connection with investigation will not be treated lightly.

19                  In my view, his Honour’s remarks are equally applicable to the failure to comply with the Board’s requirements, in the exercise of powers that are conferred on it in the public interest.

20                  It follows from these authorities, and from the statutory regime to which I referred at [13] – [21] of my principal judgment, that an appropriate penalty would be one which signifies to Mr Albarran and to the public, that failure to comply with the obligation to answer the Board’s questions will be treated no less seriously than it would in the exercise of similar functions by a Court. 

The factors relevant to determination of an appropriate penalty

21                  In Anderson v Hassett (No 2) [2007] NSWSC 1444 at [6], Brereton J listed ten factors which are now commonly considered by judges of the Supreme Court of New South Wales in determining the proper punishment for contempt.

22                  Eight of those factors were listed by Emmett J in Pappas at [2] as relevant to the question of determination of penalty in the case of failure to assist ASIC in connection with an investigation under s 19 of the ASIC Act.

23                  I adopt the factors listed by Brereton J in Anderson, and accepted by Emmett J in Pappas, as guiding principles for the determination of the appropriate penalty.  The tenth factor referred to by Brereton J, namely denunciation of the contempt, was not included in Emmett J’s list.  However, in my opinion it is a factor to be taken into account.

24                  A number of those factors point to the imposition of a substantial punishment on Mr Albarran.  In particular, his contempt was serious, he was aware of the consequences and he has not apologised to the Court or the Board.

25                  I will deal with these factors, and the presence of any mitigating factors in considering the circumstances of the case which are relevant to the question of punishment.

The circumstances of the case relevant to the question of punishment

26                  The findings which I made in my principal judgment establish, quite clearly, that Mr Albarran’s refusal to answer the Panel Chairman’s questions was wilful. 

27                  It is not to the point that Mr Albarran indicated a willingness to re-appear before the Panel after his AAT hearing.  He was summonsed to appear before the Panel in the Partner’s matter on 7 February 2007 and declined to answer questions that were put to him.  His refusal constituted deliberate and stubborn defiance of the Panel, notwithstanding the failure of his application to be excused from attendance and the absence of any prejudice to him.

28                  Mr Albarran’s failure or refusal to answer questions that were relevant to the disciplinary proceeding in the Partner’s matter was a deliberate and stubborn defiance of the Panel.  The contempt was contumacious in the sense referred to in the authorities.

29                  It is perhaps unnecessary to repeat the findings I made in my principal judgment which establish the contumacious nature of the contempt but I will do so briefly.

30                  A chronological account of the events from November 2006 to January 2007 shows that Mr Albarran, initially on the advice of solicitors and counsel, contended that the summons to give evidence was invalid.  But despite the assurance given in ASIC’s letter of 14 December 2006 that it merely sought to adduce the same evidence he had already given, Mr Albarran persisted in his application to be excused: see in particular [38], [39], [42], [47], [48], [50].

31                  Mr Magarey’s detailed ruling of 25 January 2007 made it plain that Mr Albarran had no basis for a refusal to answer questions which sought to adduce evidence that Mr Albarran had previously given in his own disciplinary proceeding: see in particular [60] and [62].

32                  I accepted at [120] that it is likely that Mr Albarran did not read Mr Magarey’s ruling but this is a further aspect of his deliberate defiance of the authority of the Board.  His attitude, as I said at [143], is graphically revealed by what was recorded in the file note of 25 January 2007, “they can take me to the Federal Court”:  see [64].

33                  Mr Albarran’s defiance is further revealed in what he said to the Panel Chairman on 7 February 2007.  I have set out the whole of the relevant exchange at [69].  It is pertinent to note that when told by the Chairman that his appearance would be virtually useless, Mr Albarran replied that the Partner who was the subject of the proceedings before the Board “wasn’t required at my hearing.  I can’t see such a big issue about me being required …”

34                  Mr Albarran persisted in his refusal when told by the Chairman that his attitude negatived Mr Magarey’s ruling “so we can’t allow that to happen.”  He continued to defy the Panel Chairman even after counsel assisting the Panel pointed out that there could not be any prejudice in being asked to give the same evidence he had given previously: see [74], [75].

35                  That Mr Albarran was aware of the consequences of the contempt is revealed in the file note of 25 January 2007, to which I have referred, and even more graphically in that part of the file note of 17 January 2007 set out at [55]. Mr Albarran was aware from this that failure to answer questions without reasonable excuse was a criminal offence for which he could be imprisoned: see [143].

36                  To this must be added my finding at [132] that Mr Albarran was prepared to run the risk of the consequences that would flow from his failure to answer questions.

37                  Senior counsel for Mr Albarran, Mr Byrne SC, put a number of well-directed submissions to me on the question of mitigation.

38                  I accept that there was no direct personal benefit to Mr Albarran from his refusal to answer the questions.  I made no finding as to the reason or motive for the contempt, but it is probably to be gleaned from Mr Albarran’s remarks in the exchange with the Panel Chairman which I referred to above.  Mr Albarran continued by saying:

To me, it seems that ASIC want to have a go at me before they get to my appeal … (see at [69]).

39                  Mr Albarran’s reason or motive may also be revealed in his misguided attempt to explain his prejudice in the passage at [142].  That is, he said he may have answered some questions differently.

40                  In short, I do not consider the absence of any direct personal benefit to be a relevant mitigating factor in the present case.

41                  Nor do I consider it relevant as a mitigating factor that the refusal to answer was in the Partner’s disciplinary proceeding, rather than Mr Albarran’s own matter.  This is because
s 219 of the ASIC Act is concerned solely with the compellability of witnesses in disciplinary proceedings before the Board.  The factor relied upon by Mr Byrne is therefore a fact which, subject to the issue of a certificate under s 219(6), enlivened the jurisdiction of the Court.  Accordingly, it cannot be a mitigating factor.

42                  It is true that Mr Albarran’s refusal to answer the questions did not prevent the Panel from completing its hearing, or from carrying out its function of disciplining the Partner.  This is not an answer to Mr Albarran’s contempt, but it carries a small amount of weight in mitigating the seriousness of the offence.

43                  Apart from what is said in three character references, all that is relevantly known of the defendant’s antecedents is that in 2005 the Board made a finding that Mr Albarran participated in contrived nominee arrangements for the appointment of administrators of Formula Engineering.  The Board did not find that Mr Albarran acted dishonestly: [33] – [34].

44                  I accept, as was stated in the references, that the effect of the disciplinary ruling has been very severe for Mr Albarran.  I accept that he was previously of good standing professionally and that he enjoyed considerable professional success.  But the consequences which flowed from the disciplinary proceeding, including the stress and personal turmoil are not related to the contempt proceeding.

45                  I do not accept that the stress and turmoil in Mr Albarran’s personal life explain his failure or refusal to answer the Panel Chairman’s questions.  However, I consider that some weight should be given to the fact that the present matter, and my findings in it, will inevitably receive publicity within the accounting profession, especially among insolvency practitioners.  This constitutes a form of punishment which will have a specific and general deterrent effect.

46                  Whilst I accept that Mr Albarran has informed the persons who provided character references of his regret for his decision to refuse to answer the questions, I do not consider that this demonstrates genuine contrition.  The short answer to Mr Byrne’s submission on this factor is that Mr Albarran has not expressed contrition to the Board or to the Court.

47                  The lack of contrition is especially relevant in light of my rejection of critical aspects of Mr Albarran’s evidence as untruthful (see at [105]) and my finding that Mr Albarran’s state of mind after Mr Magarey’s ruling was “entirely unreasonable” (at [136]).

48                  In my view, the factors in this case show that a substantial fine is required to vindicate the authority of the Board and to serve the requirements of personal and general deterrence.  I accept that a term of imprisonment is inappropriate, that being a punishment of last resort.

Level of fine

49                  I have considered the helpful bundle of authorities given to me by counsel for ASIC.  However, ultimately the authorities provide only the most general guidance because each case turns on different factual considerations.

50                  This is not a case in which I am asked to take into account the defendant’s limited financial circumstances: cf Pappas at [24]; Australian Securities and Investments Commission v Wynhoven (2004) 51 ACSR 384 at [10] per Selway J.  Here, there is no evidence as to Mr Albarran’s financial circumstances.  Accordingly, this factor can neither increase nor reduce the penalty:  Four Seasons Gutter Protection Pty Limited v Leafbusters Pty Limited (No 2) [2004] FCA 1402 at [18] per Heerey J.

51                  For reasons mentioned below, I will make an order for indemnity costs.  This is said to be a mitigating factor:  Four Seasons Gutter Protection at [17].  But it does not follow that there ought to be a mechanical process under which the level of fine is reduced to reflect the difference between indemnity costs and party and party costs.

52                  Taking into account all of the factors mentioned above, in particular the seriousness of Mr Albarran’s contempt, his knowledge of the consequences and his failure to show contrition, I consider that I ought to impose a fine of $20,000.

Indemnity Costs

53                  In BHP Steel, Kiefel J observed at [22] that persons who prosecute contempt cases are often recognised as performing a public duty and an order for indemnity costs is made so that they are not out of pocket in taking that role.

54                  The authorities which record the history of the practice of ordering solicitor/client costs in contempt proceedings are set out by Gillard J in National Australia Bank Ltd v Juric
(No 2) [2001] VSC 398 at [67] – [68].

55                  Gillard J ordered costs on a solicitor and own client basis rather than indemnity costs but those two bases are “more or less equated”: EMI Records Ltd v Ian Cameron Wallace Ltd [1982] 2 All ER 980 at 984, 989; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (FCA, French J, 3 May 1991, unreported) at 5-6.

56                  As Sir Robert Megarry VC said in EMI Records at 984, indemnity costs are commonly ordered in contempt cases.  The same practice is adopted in Australia, for reasons which include those stated by Kiefel J in BHP Steel.  I therefore propose to order Mr Albarran to pay the costs of the proceeding (including the costs incurred prior to the substitution of ASIC as plaintiff) on an indemnity basis.

Associate:

Date:           27 March 2008