FEDERAL COURT OF AUSTRALIA

Carey v Australian Securities and Investments Commission [2008] FCA 963

CORPORATIONS – powers of ASIC to begin and carry on proceedings – decision by ASIC to cause a proceeding already begun to be carried on by it – whether s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) permits ASIC to take over a proceeding

WORDS AND PHRASES – “may cause … such a proceeding to be begun and carried on”

Australian Securities and Investments Commission Act 2001 (Cth), s 50
AA Pty Ltd v Australian Crime Commission (2005) 219 ALR 666
Australian Crime Commission v AA Pty Ltd (2006) 149 FCR 540
Australian Securities Commission v Deloitte Touche Tohmatsu (1996) 70 FCR 93
Commissioner of Taxation v Citibank Limited (1989) 20 FCR 403
Deloitte Touche Tohmatsu v Australian Securities Commission (1995) 54 FCR 562
Foss v Harbottle (1843) 2 Hare 461 [67 ER 189]
Selangor United Rubber Estates Ltd v Cradock (No 4) [1969] 1 WLR 1773
Somerville v Australian Securities Commission (1995) 60 FCR 319
White v National Football League (D Minn 1993) 822 F Supp 1389; 41 F 3d 402 (8th Cir 1994)


Commonwealth, Parliamentary Debates, House of Representatives (23 May 1989)
Commonwealth, Parliamentary Debates, Senate (11 May 1989)
Eggleston Committee (Company Law Advisory Committee), Third Interim Report (June 1969)
Explanatory Memorandum, Australian Securities Commission Bill 1988 (Cth)
Explanatory Memorandum (first supplementary), Australian Securities Commission Bill 1988 (Cth)
Explanatory Memorandum (second supplementary), Australian Securities Commission Bill 1988 (Cth)
Newberg on Class Actions (3rd ed, 1992)

NORMAN PHILLIP CAREY v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

vid 57 of 2008

FINKELSTEIN J

26 JUNE 2008

MELBOURNE

THE COURT ORDERS THAT:

1.         The question stated under O 29 of the Federal Court Rules 1979 (Cth) be answered as follows:

Question:          “Is the Australian Securities and Investments Commission authorised by s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) to cause existing Federal Court proceeding VID 351 of 2007 to be carried on by it in the name of York Street Mezzanine Pty Ltd (in liq) and existing Federal Court proceeding VID 386 of 2007 to be carried on by it in the name of Ann Street Mezzanine Pty Ltd (in liq)?”

Answer:            “No”.

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

REASONS FOR JUDGMENT

1                     The collapse of the Westpoint group has resulted in many actions.  In April and May 2007 two were instituted by companies in the group, Ann Street Mezzanine Pty Ltd (in liq) and York Street Mezzanine Pty Ltd (in liq).  These actions were commenced on the instruction of the companies’ liquidators.  In one damages are sought against the former directors for breach of duty.  In the other there is a claim for the recovery of money paid to related parties.

2                     On 23 October 2007, the Australian Securities and Investments Commission (ASIC) decided that each action should be “carried on” by it in the name of the plaintiff.  In effect, the decision was to take over the conduct of each action.  This resulted in a change in the solicitor on the record from the private firm that had been retained by the liquidators to the Australian Government Solicitor (AGS).  One of the defendants, Mr Carey, contended that ASIC’s decision was invalid for a variety of reasons, one of which was that it was beyond power.  It has been decided that this issue should be determined separately under O 29 of the Federal Court Rules and resolved on the papers.

3                     By s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), ASIC has power to cause “a proceeding to be begun and carried on” in another person’s name.  In this case ASIC has taken over and is carrying on actions that it did not begin.  The question that arises is whether s 50 permits ASIC to “carry on” an action begun by someone else.

4                     Section 50 is headed “ASIC may cause civil proceeding to be begun”.  The section provides:

Where, as a result of an investigation or from a record of an examination (being an investigation or examination conducted under this Part), it appears to ASIC to be in the public interest for a person to begin and carry on a proceeding for:

(a)        the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or

(b)        recovery of property of the person;

ASIC:

(c)        if the person is a company--may cause; or

(d)        otherwise--may, with the person’s written consent, cause;

such a proceeding to be begun and carried on in the person’s name.

5                     The principal argument of each party can be stated briefly.  ASIC contends that the auxiliary verb phrase “may cause” should be read distributively so that it attaches to each infinitive and should be understood to mean “may cause to be begun and [may cause to be] carried on.”  On this reading, ASIC could either begin proceedings, carry on proceedings, or do both.  Mr Carey, on the other hand, says that “may cause” should be read to attach to the compound infinitive as a unit.   If this were correct, ASIC could not begin a proceeding and then cede carriage to another, nor could it assume carriage of a proceeding begun by another; it could only “begin-and-carry-on” as a unit. 

6                     I think there is some merit to each side’s approach, the section not being as clear as it might be.  Before resolving the dispute I should first note that, in the circumstances of this case, the answer is somewhat academic.  The parties accept that if Mr Carey’s view prevails ASIC can and will simply begin new proceedings in the name of each plaintiff.  Moreover, I have pointed out to the parties that in such event, I would, most likely, make an order deeming each step taken in the existing proceedings to have been taken in the new proceedings.  It might seem, therefore, that the only consequence of a victory by Mr Carey will be a bit of additional administrative work for those employed by the Federal Court Registry.

7                     Whether or not the resolution of the separate question has significance in this case, I accept that it may impact on other cases.  Here, the liquidators who commenced the proceedings wished to bow out (presumably due to cost and funding issues), but one can imagine circumstances in which ASIC might want to take over an action that has been started by a company that does not wish to cede carriage of that action to ASIC.  This brings to mind the situation that existed prior to 1995 in the US class action contest.  There the contest over who may bring a class action was often influenced, or decided, by the so called “race to the courthouse” rule; that is, the first action to be filed proceeded while the others were stayed:  Newberg on Class Actions (3rd ed, 1992) § 17.52; White v National Football League (D Minn 1993) 822 F Supp 1389, affirmed 41 F 3d 402 (8th Cir 1994).  The Private Securities Litigation Reform Act, which was enacted in 1995, got rid of the race, at least as it applied to securities fraud class actions, by providing that parties filing a class action must publish notice allowing others to come forth as plaintiffs, and there is a rebuttable presumption that the plaintiff with the largest financial interest shall be designated the class representative.  Interestingly, Mr Carey suggests that a first-to-file rule should be implied in the operation of s 50, contending that where proceedings have already been begun by a party, “section 50 has no application”.

8                     For purposes of resolving the dispute about the meaning of s 50 I intend to have regard to the context, purpose and legislative history of s 50.  Beginning with context, there is a small point, the heading, which states that ASIC may “begin” proceedings.  ASIC does not dispute that the heading works against its preferred construction.  It submits that the heading is not a permissible aid to construction in the absence of a statutory provision stating that headings are to form a substantive part of the statute (eg s 109D of the former Corporations Law).  In my view, however, s 15AB(1)(b)(i) of the Acts Interpretation Act 1901 (Cth) permits reference to the heading.  That section states that where a statute is ambiguous extrinsic materials may be consulted to clarify that ambiguity.  By operation of s 13(3), section headings are not part of an Act and are thus extrinsic.  The use of only the word “begin” suggests that the legislature had in contemplation that ASIC would initiate proceedings, not take over those brought by another.

9                     Reference should also be made to s 1330 of the Corporations Act 2001 (Cth), which gives ASIC power to intervene in existing proceedings in its own name.  Mr Carey submits that if the legislature had intended to give ASIC power to take over existing proceedings, it would have done so in express language similar to that in s 1330.  The other view, which is put by ASIC, is that s 50 and s 1330 confer “distinctly different” powers and their exercise gives rise to different sorts of proceedings; thus there should be no expectation that the wording of the provisions be similar.  While I accept that the provisions arise in somewhat different contexts, their topic is ASIC’s ability to play a role in a claim made, or that could be made, by others.  Parliament intended to give ASIC an important role.  In an existing proceeding ASIC is given a voice by having a statutory right of intervention.  If there is no proceeding, it can be brought by ASIC in the name of the person with the claim.  That s 1330 was enacted suggests that with s 50 the legislature had in contemplation only the initiation of a proceeding, not the taking over of an action already commenced, being an action in which it could intervene.

10                  Neither party referred to s 49 of the ASIC Act, which deals with criminal proceedings and provides that where following an investigation or examination it appears to ASIC that a person committed an offence against the corporations legislation, ASIC may bring a prosecution.  It is interesting to note that the same language as s 50 – “may cause … to be begun and carried on” – is found in s 49(2).  If s 49(2) were construed in the same way as ASIC contends s 50 should be construed, this would certainly have an unintended result.  It would, for example, permit ASIC to carry on a criminal prosecution already commenced (eg by the Director of Public Prosecutions).  It is clear, however, that Parliament intended the Director to have that power.  Section 6 of the Director of Public Prosecutions Act 1983 (Cth) provides that the functions of the Director include:

(a)        to institute prosecutions on indictment for indictable offences against the laws of the Commonwealth; and

(b)       to carry on prosecutions of the kind referred to in paragraph (a) …, whether or not instituted by the Director…  (Emphasis added.)

Moreover, the emphasised language shows that Parliament is well aware of the distinction between proceedings brought by a party and proceedings carried on by a party but brought by another.

11                  ASIC has a third contextual argument; it is a fallback submission to the effect that even if the power to intervene in proceedings already commenced is not expressly conferred by s 50, it is necessary and incidental to its express power to bring proceedings.  The legislative context for this submission is the “powers appendant” provisions in the ASIC Act, namely, ss 11(4) and 12A(6).  Those sections provide that ASIC has the power “to do whatever is necessary for or in connection with, or reasonably incidental to, the performance of its functions”.

12                  I have previously considered the construction of “powers appendant” provisions in AA Pty Ltd v Australian Crime Commission (2005) 219 ALR 666, reversed on other grounds in Australian Crime Commission v AA Pty Ltd (2006) 149 FCR 540.  There I observed (at 675) that the better approach to construing these provisions is to “enquire whether, having regard to the structure of the [relevant] Act, it was contemplated by Parliament that [the powers appendant provisions] could be used for the purpose for which it is now sought”.  This involves examining what it was that Parliament had in contemplation by s 50 and then determining whether ASIC’s powers appendant included the power to do what ASIC now contends.

13                  The history of s 50 and its purpose were thoroughly canvassed by the Full Court in Australian Securities Commission v Deloitte Touche Tohmatsu (1996) 70 FCR 93, 115-120.  The relevant language of s 50 as it currently stands (ie “begun and carried on”) was introduced in s 50 of the Australian Securities Commission Act 1989 (Cth).  Prior to that the language referred only to “bringing” or “instituting” proceedings.  For example, the forerunner to s 50, s 169(4) of the Companies Act 1948 (UK), provided as follows:

If … it appears to the Board of Trade that proceedings ought in the public interest to be brought by any body corporate … for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation of that body corporate or the management of its affairs, or for the recovery of any property of the body corporate which has been misapplied or wrongfully retained, they may themselves bring proceedings for that purpose in the name of the body corporate.  (Emphasis added.) 

The successor to s 169(4), s 37(1) of the Companies Act 1967 (UK), used the same language: “may themselves bring.”

14                  That the power to bring necessarily includes the power to carry on proceedings was made clear, to the extent that it was ever in doubt, by Ungoed-Thomas J in Selangor United Rubber Estates Ltd v Cradock (No 4) [1969] 1 WLR 1773.  After referring to the legislative history just recited, the judge rejected a submission that the bringing of proceedings is a continuous process requiring separate approval for the taking of each step in the proceedings.  He noted (at 1783):

[T]he decision that the proceedings ought in the public interest to be brought is a decision based on the report and is directed to a single decision (even though capable of reversal).  It would be contrary to the wording of the Act and common sense, so it appears to me, that a separate decision that proceedings should in the public interest be brought, should be required for every step taken in the proceedings.  The single decision would cover all such steps.

15                  Ungoed-Thomas J’s comments were made in the context of resolving whether the 1948 or 1967 Companies Act was the applicable Act where the proceeding was commenced prior to the 1967 Act but a relevant step in the proceeding was taken after that Act had come into force.  Nevertheless, I agree with his view that, as a matter of common sense, the power to bring proceedings (and the decision to exercise that power) necessarily includes the power and authorisation to carry those proceedings to their conclusion.

16                  The provision in the 1948 Act was reproduced in substantially identical form in the Uniform Companies Acts of 1961.  Section 169(7) of the Victorian Act provided that “[i]f from any report under this section it appears to the Minister that proceedings ought in the public interest to be brought by any company … he may himself bring proceedings for that purpose”.  Section 178(9) of the New South Wales Act provided that “[i]f from a report of an inspector made under this section … the Minister is of the opinion that proceedings ought in the public interest to be brought by a company … the Minister may cause proceedings to be instituted”.

17                  The immediate predecessors to s 50 maintained the use of the word “bring.”  The Explanatory Memorandum to the Australian Securities Commission Bill 1988 (Cth) identified (at [151]) s 306(11) of the Companies Act 1981 (Cth), s 30(9) of the Securities Industry Act 1980 (Cth) and s 36(9) of the Futures Industry Act 1986 (Cth) as the bases for s 50.  See also s 48(6) of the National Companies and Securities Commission Act 1979 (Cth).  However, each of those provisions employed the phrase “may cause proceedings to be brought” and there is nothing in the Explanatory Memorandum or elsewhere, as far as I have been able to determine, that explains the abandonment of “brought” in favour of the current language “begun and carried on”.

18                  The direct legislative history of the Australian Securities Commission Bill and s 50 is as follows.  Clause 50 of the Bill (introduced and read for the first time on 25 May 1988 in the House of Representatives by then Attorney-General Lionel Bowen) originally provided that the Commission could cause a proceeding “to be brought and carried on” in either a company’s or a person’s name, without consent.  The Government then asked that the Bill be amended to require that written consent be obtained in both cases.  The House accepted this amendment.  The first Supplementary Explanatory Memorandum (at [16]-[17]) stated that this amendment was necessary so that s 50 could conform to s 1325(3) of the then-pending Corporations Bill.  The Senate further amended the Bill by modifying the consent requirement so that it only applied to actions brought in the name of a natural person:  Commonwealth, Parliamentary Debates, Senate (11 May 1989), 2253.  The second Supplementary Explanatory Memorandum (at [21]-[24]) reveals that the purpose of this amendment was to make s 50 consistent with the rule in Foss v Harbottle (1843) 2 Hare 461 [67 ER 189] and was necessary to allow the Commission to proceed where the wrongdoers were still “in a position to prevent the company [from] recovering its loss” by exercising control over the company and refusing consent for proceedings to be brought.  No further substantive changes were made to s 50 from that time until the present day.

19                  In Deloitte (1996) 70 FCR at 115 the Full Court identified the purpose of s 50 by reference to a 1969 report to Parliament on the Uniform Companies Acts:  “The mischief sought to be addressed by s 50, and by its precursors both in this country and in England, was considered by the Eggleston Company Law Advisory Committee Report (1969).”  In particular, the Court (at 115-116) quoted the following passage from the Eggleston Report:

In our view, it should be regarded as the responsibility of government to take civil proceedings in the name of the company in cases where there are seen to be good prospects of recovery, but in which, by reason of the relative poverty of the shareholders or creditors, the inability of the company itself to finance proceedings, or the practical impossibility of organizing financial support for the litigation, it is improbable that action will be taken without the support of government.

See also Somerville v Australian Securities Commission (1995) 60 FCR 319, 324 (“An evident function of s 50 is to permit the Commission, acting in the public interest, to cause proceedings to be taken where persons or corporations have suffered loss or harm arising from fraud, negligence or misconduct, but do not have the resources to maintain expensive and complicated litigation”).

20                  The Full Court added that “[s]ection 50 is clearly remedial in character.  It thus should be construed beneficially, so as to give the most complete remedy which is consistent with the actual language employed”:  70 FCR at 118-119 (internal quotation marks and citations omitted).

21                  Based on the legislative history, ASIC argued that the change in statutory language from “brought” to “begun and carried on” must involve a change in meaning, the nature of the change being that “and carried on” conferred a new power to intervene in and carry on existing actions.  The argument starts with the premise, which I have already accepted, that the power to bring or begin proceedings necessarily includes the power to carry on proceedings.  Thus, the argument goes, the addition of “and carry on” must be construed as conferring an additional power in order to avoid rendering the additional words superfluous, contrary to the well-known maxim that, where possible, all the words of a provision should be given some work to do.

22                  In ASIC’s favour is the principle, which the Full Court found to apply with respect to s 50, that remedial statutes should be construed broadly.  It is contended that, being the narrower of the two constructions, the construction precluding it from intervening and carrying on proceedings begun by others should be rejected.

23                  The difficulty with ASIC’s submissions is that they find no support in the legislative history.  Crucially, neither the Explanatory Memorandum, the supplementary Explanatory Memoranda nor the parliamentary debates make any reference to the possibility of ASIC intervening in and carrying on existing proceedings on behalf of a company.  Indeed, the Explanatory Memoranda and debates do not even recite the “begin and carry on” language; rather, the Explanatory Memorandum (at [152]) states in relation to s 50 that “the ASC will be permitted to commence civil proceedings”.  Further, the Attorney General noted on the return of the Bill from the Senate (s 50 was not mentioned in the second reading speech) that s 50 “empowers the ASC to commence a representative action in the name of the company”: Commonwealth, Parliamentary Debates, House of Representatives (23 May 1989), 2649 (emphases added).

24                  The flaw in ASIC’s surplusage argument is that the immediate predecessors to s 50 did not read “may cause to be begun.”  Similarly, the current statute does not read “may cause to be brought and carried on.”  In either of those cases, where the old language would not have been modified, the addition of “and carried on” would be rendered superfluous if the section were construed to retain the same meaning.  Here, however, the change was accomplished by abandoning “brought” and replacing it with “begun and carried on.”  While it may be inelegant drafting to replace one word with four to achieve the same effect, construing each of the four words together to have the same meaning as the prior version does not render any of those words otiose.  As ASIC acknowledges, the “phrase ‘begun and carried on’ may have some cumulative operation within its own terms.”

25                  The canon of broad construction of remedial statutes is also not implicated here.  By ASIC’s own admission, to construe s 50 as precluding intervention in existing proceedings does not result in any limitation of ASIC’s ability to prosecute proceedings in cases where a previously instituted proceeding has been discontinued; it can simply cause a new proceeding to be brought in the company’s name.  In other words, a narrower construction of the statutory language does not in effect frustrate the statutory purpose of facilitating recovery of damages by the regulator on behalf of a company where no one else is willing or able to bring the action. 

26                  On the other hand, if the company itself, or with permission another person on behalf of the company, is willing and able to bring proceedings, the purpose of the section – to facilitate the bringing of actions where there is otherwise insufficient funding or the value of individual shareholder claims is too small to make litigation worthwhile – is not activated.  If the s 50 power were construed to confer a power to intervene, it would presumably allow ASIC to oust the party having brought the proceedings from retaining control.  This is because there is nothing in the section that would suggest the consent of the party that originally brought the proceedings is necessary for ASIC to cause them to be carried on.  Nor would there be any statutory basis for limiting the use of the “carrying on” power only to situations where the commencing party is no longer willing or able to proceed.  I consider it unlikely that Parliament had in mind that ASIC could expend public funds to take over an action when that action, backed by private funding, might continue. 

27                  Mr Carey refers to the legislative history, as well as to the lack of any reference in the legislative record to intervention in existing proceedings, in support of his submission that what Parliament really had in mind, notwithstanding the change in phrasing, was simply the continuation of the legislative scheme that had been imported from the UK.  Under that scheme the regulator had power to “bring” or “commence” proceedings (such power of course including the power to carry on those proceedings) but not a separate and additional power to intervene in and carry on existing proceedings.

28                  I am persuaded by this argument.  Citing from the first instance decision of Lindgren J in Deloitte Touche Tohmatsu v Australian Securities Commission (1995) 54 FCR 562, 570, Lockhart J in Somerville 60 FCR at 324 noted, in a passage that was later quoted with approval by the Full Court in Deloitte 70 FCR at 117, that “s 50 confer[s] an ‘extraordinary power’ on the Commission to cause a proceeding to be begun and carried on, not in the name of the Commission, but in the name of another person in respect of a cause of action of that other person. The section gives the Commission a power not available to it under the general law and renders lawful an act by it which would otherwise be unlawful.”  The presumption that the legislature does not casually derogate from the common law is admittedly not as strong as it once was:  Commissioner of Taxation v Citibank Limited (1989) 20 FCR 403, 433-434.  However, the absence of any clear indication from Parliament that the s 50 power includes the power to take over and carry on an existing proceeding (perhaps contrary to the wishes of the plaintiff) provides strong support for a narrow construction.

29                  Indeed, if ASIC’s broader construction were adopted, it would mean that Parliament had conferred a power on ASIC by accident.  ASIC submits that “[t]he fact that the words ‘may cause’ appear in each of [the] two subparagraphs before the provision that states what may be caused, supports [the] distributive effect” (ie that “may cause” should be understood to attach to both infinitives rather than the infinitive phrase as a whole).  However, s 50 was originally drafted as follows:

Where, as a result of an investigation or from a record of an examination, it appears to the Commission to be in the public interest for a person to begin and carry on a federal proceeding for:

(a)        the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or

(b)        recovery of property of the person;

the Commission may cause such a proceeding to be begun and carried on in the person’s name.

30                  In other words, the auxiliary phrase “may cause” was not repeated or separated from the infinitive phrase.  The legislative history demonstrates that the reason the separation occurred was to distinguish between corporate persons, where consent would not be required for ASIC to bring an action, and natural persons, where consent would be required.  There is nothing in the record to show that Parliament intended the separation for the additional or alternate reason of causing the auxiliary to be read distributively so that an additional power of intervention was conferred.  I am unable to accept that Parliament accidentally conferred an additional power of intervention on ASIC as a by-product of its attempt to introduce a consent requirement.

31                  For the foregoing reasons, the question under O 29 will be answered in the negative.  I shall hear the parties on costs.

Associate:

Dated:         26 June 2008