Federal Court of Australia

Australian Securities and Investments Commission v Mitchell (No 3) [2020] FCA 1604

ORDERS

THE COURT DECLARES THAT:

1.    Pursuant to s 1317E(1) of the Corporations Act 2001 (Cth), the first defendant, Mr Harold Charles Mitchell, contravened s 180(1) of the Act in that in his capacity as a director of Tennis Australia Ltd (TA) he failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would have exercised if they were a director of a corporation in TA’s circumstances and occupied the same office as and had the same responsibilities within TA as Mr Mitchell, in that:

(a)    on 1 December 2012, Mr Mitchell forwarded to Mr Bruce McWilliam (group chief legal and commercial director of Seven Network (Operations) Ltd (Seven)), Mr Steven Wood’s (TA’s chief executive officer) email to Mr Mitchell at 1.54 pm on 1 December 2012 and an email that Mr Mitchell had sent to Mr Wood on the same date at 2.36 pm, that disclosed TA’s internal deliberations and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose;

(b)    on 2 December 2012, Mr Mitchell told Mr McWilliam that he had “jumped on” Mr Wood for appointing IMG Media Ltd to sell TA’s domestic broadcast rights, which disclosed internal deliberations of TA, and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose; and

(c)    on 13 December 2012, Mr Mitchell told Mr McWilliam by email to hold off on sending points relating to Seven’s negotiating position to Mr Wood in advance of a proposed meeting, which was not appropriate for Mr Mitchell to have done, and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose.

AND THE COURT ORDERS THAT:

2.    Mr Mitchell pay a pecuniary penalty to the Commonwealth of Australia in the amount of $90,000.

3.    There be no order as to the costs of the proceeding as between the Australian Securities and Investments Commission and Mr Mitchell.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    On 31 July 2020, I determined that Mr Mitchell had contravened s 180(1) of the Corporations Act 2001 (Cth) on three occasions as set out in my reasons (Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098 at [17]. [1713] to [1741] and [2023]).

2    In summary, in my view Mr Mitchell had stepped over the line in his dealings with Mr Bruce McWilliam, group chief legal and commercial director of Seven Network (Operations) Ltd (Seven). And his overall conduct had the tendency to undermine the stance and approach of Mr Steven Wood, the then chief executive officer of Tennis Australia Ltd (TA), relating to negotiations with Seven concerning the renewal of the domestic broadcast rights. There were matters that Mr Mitchell communicated to Mr McWilliam that he ought not to have done, particularly in the latter part of 2012. Now none of this ultimately caused damage to TA. And none of Mr Mitchell’s conduct was motivated by anything other than his perception that he thought that it was in the interests of TA that a deal with Seven should be consummated sooner rather than later. But to so conclude did not entail that Mr Mitchell had not contravened his director’s duties. I held that he had contravened s 180(1) on three occasions. But as I said, his contraventions were far narrower in scope than ASIC would have it. Moreover, I said that any necessary general deterrence, specific deterrence and protective objectives may well be served by making declarations and imposing a moderate pecuniary penalty on Mr Mitchell without any disqualification order being imposed.

3    The parties have now filed written submissions concerning the form of the declarations that I should make and the appropriate penalty that I should fix; they have also addressed the costs question. Given the inconvenience caused by the current COVID-19 restrictions in Victoria, I determined to dispose of these issues on the papers.

4    Now the parties are at odds on three questions. First, the parties disagree as to the form of the declarations. Second, ASIC seeks a penalty of $150,000. Contrastingly, Mr Mitchell says that no penalty should be imposed. I also note that ASIC does not now seek any disqualification order in the light of my principal reasons. Third, Mr Mitchell says that he should have 90% of his costs of the proceeding. Contrastingly, ASIC says that there should be no order as to costs.

5    Let me first address the question of declarations.

6    In my view, it is appropriate to make declarations pursuant to s 1317E(1) of the Act that Mr Mitchell on three occasions contravened s 180(1) in that in his capacity as a director of TA he failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would have exercised if they were a director of TA and occupied the same office and had the same responsibilities within TA as Mr Mitchell, in that:

(a)    on 1 December 2012, Mr Mitchell forwarded to Mr McWilliam Mr Wood’s email to Mr Mitchell at 1.54 pm on 1 December 2012, and an email that Mr Mitchell had sent to Mr Wood on the same date at 2.36 pm, that disclosed TA’s internal deliberations and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose (declaration (a));

(b)    on 2 December 2012, Mr Mitchell told Mr McWilliam that he had “jumped on” Mr Wood for appointing IMG Media Ltd to sell TA’s domestic broadcast rights, which disclosed internal deliberations of TA, and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose (declaration (b)); and

(c)    on 13 December 2012, Mr Mitchell told Mr McWilliam by email to hold off on sending points relating to Seven’s negotiating position to Mr Wood in advance of a proposed meeting, which was not appropriate for Mr Mitchell to have done, and gave rise to reasonably foreseeable harm to TA, although that was not Mr Mitchell’s purpose (declaration (c)).

7    Now as to declaratory relief, I have an almost unlimited discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth), which “[i]t is neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise” (Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437 per Gibbs J). But it is confined by considerations which mark out the boundaries of judicial power.

8    But in any event, s 1317E provides an express power to make declarations and mandates that I do so. Moreover, it is necessary to make declarations under s 1317E in order to satisfy a precondition to the exercise of my powers under s 1317G to impose a pecuniary penalty; I will discuss this later.

9    Given the findings in my principal reasons, there is little doubt that declarations should be made, not only because of the mandatory nature of s 1317E but also because:

(a)    there was a real issue that had to be resolved by a contested trial;

(b)    declarations in the present case will serve the objective of general deterrence; and

(c)    as I have said, in order to impose a pecuniary penalty on Mr Mitchell the making of declarations is a necessary precondition.

10    As to the form of the declarations, the parties have disagreed over their form. Now I do not propose to set out their duelling drafts. It suffices to say that I have expressed the declarations in a manner that best fits what I said in my principal reasons objectively construed and consistently with how the case was run and closed; if pure conformity with the pleaded case is lacking, that does not concern me in light of the consistency that I have just identified.

11    Let me then turn to the question of penalty and the first issue as to whether my power has been enlivened.

12    Mr Mitchell contends that my power to order him to pay a pecuniary penalty is only enlivened if both a declaration of contravention has been made and, relevantly, the contravention either materially prejudices the interests of the corporation (s 1317G(1)(b)(i)) or is serious (s 1317G(1)(b)(iii)). He contends that a contravention is “serious” if the relevant default is grave or significant, which is to be determined by reference to the degree of departure by him from the requisite standard of care and diligence and the potential or actual consequences of the contravention (Vines v Australian Securities and Investments Commission (2007) 63 ACSR 505 at [229] per Ipp JA). But he contends that each of the contraventions do not satisfy either the limb of material prejudice or the limb of seriousness. Accordingly, he says that no penalty can be imposed.

13    In order to address this question of power, it is necessary to engage in a little recapitulation.

14    I found that none of the conduct giving rise to Mr Mitchell’s three contraventions caused any actual damage to TA. I accepted that the contraventions were each predicated upon reasonable foreseeability of harm, but not actual harm. Further, I found that Mr Mitchell was motivated at all times by a belief that he was acting in the interests of TA.

15    Now as to the first contravention, the content of which I have synthesised in declaration (a), I said the following (at [1718] to [1722] and [1725]):

As Mr McWilliam explained it, when he received Mr Mitchell’s 1 December 2012 email, he knew it related to the matter that had been the subject of discussion at the 1 November 2012 meeting. Mr McWilliam said that receiving the email had not conferred on him any form of negotiating advantage. I am not so convinced. It was telling him more about TA’s internal divisions which was useful information.

Forwarding the 1 December 2012 emails disclosed to Seven TA’s internal deliberations, which in my view could strictly be said to give rise to reasonably foreseeable harm, although that was not Mr Mitchell’s purpose.

Further, it was no excuse for Mr Mitchell to say that to the extent that the emails pointed to a difference of view between Mr Wood and Mr Mitchell on the question of whether any heads of agreement should include a long-form/non-binding agreement clause, that was a matter that was already to some extent known by Mr McWilliam as a result of the 1 November 2012 meeting.

In my view, it was not appropriate for Mr Mitchell to forward the 1 December 2012 emails to Mr McWilliam, and in my view to do so was a breach of s 180.

But I reject ASIC’s case that Mr Mitchell gave Seven information with a view to assisting them to win the contract and worked together with Seven to give Seven the inside running to get this contract.

…

In summary, and even though Mr Mitchell may not have acted from an improper motive, it was entirely unacceptable to send to Seven TA’s internal emails. The breach of s 180(1) is made out, but not that concerning s 183(1). Even if there was objective impropriety in relation to s 183(1), the requisite purposive element was missing.

16    As to the second contravention, the content of which I have synthesised in declaration (b), I said the following (at [1729] to [1734]):

Further, in relation to IMG, Mr McWilliam said that he could not remember how he learned that IMG had expressed an interest in the domestic broadcast rights for tennis, although it may have been just general industry knowledge or IMG may have gone to see Seven about it. He considered IMG to be a pest that had always been hovering about tennis and trying to take commissions. But Seven would rather have dealt directly with the rights holder.

Mr McWilliam’s recollection was that Mr Mitchell had told him that he had jumped on Mr Wood. He gave the following evidence under questioning by Dr Collins QC:

In this email you’ve written:

Harold had to jump on him, Mr Wood, appointing IMG.

?---Yes.

How did you know that Mr Mitchell had jumped on Mr Wood?---Well, he told me that he had jumped on him and it was a terrible – given we had a protected first negotiating position, for him to be talking about appointing an agent was not in good faith and would have created shocking confusion in the market as well as, you know, would have put us in a position were we going to do something about it.

So Mr Mitchell had told you that he had jumped on Mr Wood in respect of IMG?---Yes.

Did you consider IMG to be a potential rival bidder for the domestic tennis rights?---No, I considered them to be pests.

Did you consider it a realistic prospect that Tennis Australia might entertain selling the domestic rights to IMG?---Never. That’s why I thought it was extremely naïve for Steve Wood to even contemplate it, and I’m not sure whether he did it just to like have something to push us up against but as if he would have done it. He would have made his own selling force, his own commercial director, a – a neutered force. It just doesn’t make sense that on the one hand you are trying to take all your production expertise in-house and be the master of your own feeds and everything, and on the other hand you’re going to give your main revenue source over to IMG to sell and pay them 30 per cent for the privilege. And I think their letter of offer was lower than what Channel 7 offered. So it was like a crazy thing.

In the next sentence, you’ve said:

It seems to be a battle against him, the CEO, and Harold.

What was the source of the information you’ve conveyed in that sentence?---I just think that’s my editorialising, my – it’s my impression from what has been happening.

Had Mr Mitchell said to you “I’m in a battle against Mr Wood”?---No.

Mr McWilliam said that he never considered it a realistic prospect that TA might entertain selling the domestic rights to IMG. He thought it was “extremely naive” for Mr Wood to even contemplate it.

Further, Mr Wood did not perceive Mr Mitchell’s views in relation to IMG as constituting a direction even if Mr Mitchell had the authority to “direct” him. Despite Mr Mitchell’s statement to him, Mr Wood continued to engage with IMG in respect of the domestic rights well into 2013, including by procuring IMG to provide its second offer.

Now in all of those circumstances, Dr Collins QC has contended that there was nothing improper in Mr Mitchell telling Mr McWilliam on or about 2 December 2012 that he had jumped on Mr Wood in relation to IMG. Further, nothing Mr Mitchell said to Mr McWilliam could rationally have weakened TA’s negotiating position in relation to the sale of the domestic broadcast rights. Further, Mr Mitchell did not undermine TA’s ability to use an expression of interest from IMG as leverage to push up Seven’s offer price, as in fact occurred.

But in my view, Mr Mitchell acted in breach of s 180, although not s 183 given the lack of the purposive element, in these communications with Mr McWilliam. Again, he ought not to have disclosed internal deliberations; it cannot be said that there was not, strictly, reasonably foreseeable harm in doing so.

17    As to the third contravention, the content of which I have synthesised in declaration (c), I said the following (at [1736] to [1741]):

The materials that Mr Mitchell is said to have withheld from Mr Wood were outlined in an email from Mr McWilliam dated 13 December 2012 in the following terms:

Harold

Is it useful to send steve (ahead of sunday) a few points we could accept, or confusing?

I guess we don’t like him saying we have to sell to fox and online and forcing us with taking the rights away if we don’t. When we r paying a premium amount

Secondly he missed the point on production. For a start, if they build permanent facility, then we don’t need to build our own, and we should pay for that. At fair rate card. But shouldn’t cost us more than what it costs to do it ourselves. Second if ever they produce own production. Host feed has to be reasonable cost. Steve is confusing the total cost of our production with what we’d get from TA if they were host broadcaster. It is very hard to be specific in advance but he cant say it is unilateral $9 mill when we probably still have to spend a third of that anyway given nature of our coverage commentators etc.

What do you think - send him something in advance or hold for sunday?

And them wanting to cover player interviews etc will just take away from our coverage, impose different priorities etc

Regards

Bruce

Later the same day Mr Mitchell replied, “Think we should hold it until Sunday! He talks to the people on his staff [a]nd gets pushed into a corner! To [sic] much thinking time!”.

Now the purpose of the meeting was “to run thru a few things we could do for Steve if it assists” and to identify “a few points we could accept”. As Mr McWilliam explained, the purpose was for him to identify items that “we wanted to tell, you know, give up to get Steve Wood over the line”.

Now the matters identified in Mr McWilliam’s email, namely, pay television and online rights, and the host broadcast role, were not total surprises. Such matters had been the subject of discussions over several months and were the subject of competing positions in Seven’s November offer and TA’s marked-up response of 7 November 2012. Mr Wood knew Seven’s position in relation to some of the matters already, and Mr McWilliam knew Mr Wood’s position.

Further, Mr Wood gave detailed evidence in relation to the dynamics of the negotiations between TA and Seven in this period. When he met with Seven representatives in relation to the domestic broadcast rights, Mr Wood was at best negotiating in relation to matters of in-principle agreement. His position was always that nothing was agreed until everything was agreed. He took the view that he was free to leave any meeting with representatives of Seven and go away and reflect on what had happened and come up with a different position. He would leave meetings, go back to TA and talk about what had happened with his team, including about TA’s imperatives from any renewed agreement. He had time to reflect on and think about what had happened in meetings he attended with Seven representatives and if, as a result of having more thinking time and discussing it with his team, he had a different position from that which had been discussed at the meeting, it was always open to him to reopen the matter, because nothing was agreed until everything was agreed.

In my view, Mr Mitchell’s conduct amounted to a breach of s 180, but not s 182 given the absence of the requisite purposive element. It was simply not appropriate for Mr Mitchell to advise Mr McWilliam to hold off on sending points to Mr Wood that Seven was going to concede and instead to present them at the proposed meeting on 16 December 2012. I accept that any reasonably foreseeable harm to TA is marginal, but nevertheless in my view a breach of s 180 has been established.

18    In my view, my power to order a pecuniary penalty has been enlivened. Each of the contraventions were “serious” (s 1317G(1)(b)(iii)). But I do accept that they do not satisfy the limb of materially prejudicing the interests of TA (s 1317G(1)(b)(i)). Let me elaborate further on the statutory concept of “serious” and its application.

19    Section 1317G(1) at the relevant time provided:

Corporation/scheme civil penalty provisions

(1) A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if:

(a) a declaration of contravention by the person has been made under section 1317E; and

(aa) the contravention is of a corporation/scheme civil penalty provision; and

(b) the contravention:

(i) materially prejudices the interests of the corporation or scheme, or its members; or

(ii) materially prejudices the corporation’s ability to pay its creditors; or

(iii) is serious.

20    Section 1317E(1)(a) at the relevant time provided:

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

(a) subsections 180(1) and 181(1) and (2), 182(1) and (2), 183(1) and (2) (officers’ duties); …

These provisions are the civil penalty provisions.

21    Section 1317DA at the relevant time provided that a “corporation/scheme civil penalty provision” includes the provisions referred to in s 1317E(1)(a).

22    Now I am only concerned with the option in s 1317G(1)(b)(iii), rather than the option in s 1317G(1)(b)(i) which is not made out; the option in s 1317G(b)(ii) is also irrelevant.

23    What is meant by the contravention being “serious” within the meaning of s 1317G(1)(b)(iii)?

24    Putting to one side for the moment the text and context within which “serious” appears, one can well understand why various substitutes if not purported synonyms have been proffered by judges such as “grave”, “not trifling”, “weighty”, “considerable”, “important” or “significant”. But in my view concepts such as “significant” or “not trifling” do not fit the bill adequately. Such concepts can be contrasted with their converse, such as “trivial”, “minor”, “inconsequential” or “insignificant”. But “serious” in both its denotative and connotative senses seems to suggest something more than “significant” or “not trifling”. Why do I say that? If the premise for the application of s 1317G(1)(b)(iii) is a declaration of a contravention of s 180(1), then clearly one starts with something that is “significant” or “not trifling”. The concept of “serious” must go beyond this. Now “grave” would fit the bill although it may travel beyond what is needed, and “weighty” might get close. But what about “important”? Certainly if something was serious, it would be important. Perhaps too, if something was important, it would be serious.

25    But perhaps an alternative approach is open. Perhaps “serious” does mean “significant” or “not trifling”. And the answer to the previous point may be to say that there is no difficulty in finding all contraventions of s 180(1) to be serious. But of course there may be contraventions of other civil penalty provisions where one could not necessarily say this. After all s 1317E(1) identifies numerous classes of civil penalty provisions in its 44 subparagraphs. Hence the additional condition imposed in s 1317G(1)(b)(iii) because it has to apply to all 44 classes. But I would reject such an alternative approach by reference to what class of civil penalty provision one was talking about.

26    In my view, “serious” is to be applied to the particular contravention and the particular conduct underpinning it, rather than to take a class based approach applicable to the particular statutory provision; in other words you cannot simply say that a breach of s 180(1) is necessarily “serious”. Back then to the question. What does “serious” mean?

27    Does “serious” look to the consequences of the conduct in terms of the relevant company or third parties? Does it look to any element of deliberateness or intent or even dishonesty? Does it look to its covertness? Does it look to its duration? Does it look to effect on reputation or financial consequences? Does it involve more than an error of judgment or inadvertence? Or does “serious” embrace any or all of the above?

28    And should one simply apply the ordinary or plain meaning of “serious” (Vines v ASIC at [226] per Ipp JA)? One class of definition given by the Oxford English Dictionary that is relevant to the present context is “3a. Weighty, grave; important, significant, of great consequence.” Now that may illuminate the scope of the adjective, but it still does not tell you what it is specifically being applied to; in any event “significant” sets the bar too low, and “weighty” might not quite get you there.

29    I propose to adopt most of the approach of Ipp JA in Vines, augmented by some observations of Santow JA albeit in dissent in the result.

30    First, seriousness must focus on the particular contravention. It is not appropriate to look at the cumulative consequences of all contraventions (at [225]).

31    Second, “serious” should bear its ordinary or plain meaning (at [226]). For that purpose I will use the OED meaning that I have set out, omitting “significant” which is sometimes used simply to mean “real” or “of substance” and therefore sets the bar too low.

32    Third, and relevantly to s 180(1), the absence of establishing deliberateness to harm the corporation or prefer one’s own interest, the absence of dishonesty or the absence of impropriety is irrelevant to whether the contravention was “serious”. The seriousness of conduct amounting to a contravention of s 180(1) “cannot be reduced by reference to elements irrelevant to the section” (at [227]).

33    Fourth, as Ipp JA encapsulated the concept (at [229]), subject to what I am just about to say:

In my opinion, in this context, the seriousness of the contravention is to be determined by reference to:

(a)     the degree by which the officer of the corporation concerned has departed from the requisite standard of care and diligence (the standard being that explained by Spigelman CJ in the contraventions appeal reasons at [138]–[151]); and

 (b)     the consequences, potential or actual, of the contraventions.

34    Now Ipp JA’s limb (b) requires some qualification. In this respect I agree with the following observations of Santow JA (at [158], [162], [163] and [194(ii) and (vi) (first possibility)]):

… But the question in relation to s 1317EA(5) of whether a contravention is serious is not to be determined simply by reference to its consequences. The breaches here are not analogous to the kind of breaches defined in terms of consequence, such as “dangerous driving causing death” or the civil equivalent. The statutory standard of care and diligence gives rise rather to a “non-result” offence. Detriment is not an essential ingredient for breach of s 232(4), though commonly found.

…

Some limited guidance can be found in authorities on the expression “serious misconduct” or “serious and wilful misconduct”. Johnson v Marshall Sons & Co Ltd [1906] AC 409 was a case concerning whether the deceased was owed compensation by his employer under the Workers Compensation Act or was disqualified by reason of his own “serious misconduct”. Lord James observed (at 414) “that serious misconduct cannot be construed by the consequences of any act. A man may be told not to walk on the grass. He does so, slips up and breaks his leg. The consequences are serious, but the misconduct is not so”. There however, the consequences were essentially for the person who slipped.

More relevant is the observation of Lord Loreburn LC at 411–12L “Further, the Act says it [the misconduct] must be ‘serious’ meaning not that the actual consequences were serious, but that the misconduct itself was so”.

…

Construing s 1317EA(5), as to what is meant by the description “a serious one” applied to a declared contravention for civil penalty purposes, the following matters are relevant:

…

(ii)    when seriousness of consequences enters into whether there was any breach at all, it does so for a different purpose, distinct from that of s 1317EA(5). It does so to set a context for determining the degree of care and diligence called for in the corporation’s circumstances for a person placed as the relevant officer was;

…

(vi)    seriousness in the context of s 1317EA(5) as I have said is directed primarily to the intrinsic gravity of the breach rather than to its consequence as such. To the extent adverse consequence enters into consideration for that purpose, it is primarily to ask whether the relevant breach reflects lack of proper concern by the offender for those adverse consequences of risk. That feature was essentially absent here because the breach was inadvertent and stemmed from error of judgment, not from lack of concern for consequences nor lack of application generally;

…

35    In summary then, in terms of “serious”, the focus should not be so much on the actual or potential harm to TA but rather the degree of departure by Mr Mitchell from the requisite standard of care and diligence. And in that sense I am satisfied that each of Mr Mitchell’s contraventions were serious. His conduct had the tendency to undermine the authority of Mr Wood. His conduct in forwarding internal TA communications to Seven was quite unusual and unacceptable. And his conduct generally was undisciplined and fell well short of what was expected of a director in his position given the centrality and significance to TA of the negotiations with Seven. Now Mr Mitchell points to the fact that no harm was caused. But this does not go to the question of “serious” as much as to the quantum of penalty. He also points to his bona fide belief that he was acting in TA’s interests. But again this goes to the quantum of penalty rather than to whether the contraventions were “serious”.

36    In summary, my power to order a pecuniary penalty has been enlivened. Let me then turn to that matter more directly.

37    The principal objective of a penalty is deterrence. And as to its two dimensions of specific and general deterrence, I said in Australian Securities and Investments Commission v Westpac Banking Corporation (No 3) (2018) 131 ACSR 585 (at [117] to [119]):

It is well established that deterrence is the primary objective for the imposition of civil penalties (Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159 at [385] per Middleton, Beach and Moshinsky JJ; see also [Australian Securities and Investments Commissions v Commonwealth Bank of Australia (2018) 128 ACSR 289] at [62]). In Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [55], the High Court approved of French J’s observation in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152:

The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.

In ASIC v CBA, I observed (at [62]) that the penalty:

must be fixed to ensure that the penalty is not to be regarded as an acceptable cost of doing business. As I have said, both specific and general deterrence are important. The need for specific deterrence is informed by the attitude of the contravener to the contraventions, both during the course of the contravening conduct and in the course of the proceedings. And the need for general deterrence is particularly important when imposing a penalty for a contravention which is difficult to detect.

The High Court considered civil penalty provisions in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 351 ALR 190. Kiefel CJ referred to “the deterrent effect which is the very point of the penalty” and “the purpose for which the power is given” (at [44]). Keane, Nettle and Gordon JJ reiterated (at [87]) that:

the principal consideration in the imposition of penalties for contravention of civil remedy provisions is deterrence, both specific and general; more particularly, the objective is to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene.

38    I should next say something about the maximum penalty. When Mr Mitchell contravened s 180(1), s 1317G(1) provided for a maximum penalty of $200,000. But on 13 March 2019, s 1317G was amended by sch 1 to the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth). Schedule 1 to that Act also inserted s 1657 in the Act, which provided that sch 1 should apply only to contraventions committed after the schedule had commenced, being on 13 March 2019 (s 2(1)). I say all of this because contrary to Mr Mitchell’s submissions, the penalty at the time was not fixed by reference to penalty units as now provided for by the current form of s 1317G.

39    Now I can order Mr Mitchell to pay to the Commonwealth a pecuniary penalty of up to $200,000 per contravention. But if the contravening conduct is not so grave as to warrant the imposition of the maximum penalty, I am bound to consider, as I have, where the facts of the particular conduct lie on the spectrum that extends from the least serious instances of the relevant contravention to the worst category.

40    Now in addition to considering the maximum penalty applicable, the fixing of a pecuniary penalty involves the identification and balancing of all the factors relevant to the contravention and the circumstances of the defendant, and the making of a value judgment as to what is the appropriate penalty in light of the objects of a pecuniary penalty that I have just explained; I should say that the relevant statutory provisions at the time did not stipulate any mandatory factors. The relevant augmented French factors that it is appropriate for me to consider include the following:

(a)    the extent to which the contravention was the result of deliberate or reckless conduct as opposed to negligence or carelessness;

(b)    the number of contraventions, the length of the period over which the contraventions occurred, and whether the contraventions comprised isolated conduct or were systematic;

(c)    the seniority of the person responsible for the contravention;

(d)    the capacity of the defendant to pay, but only in the sense that whilst it does not of itself justify a higher penalty than might otherwise be imposed, it may be relevant in determining the size of the pecuniary penalty that would operate as an effective specific deterrent;

(e)    the degree of the person’s cooperation with the regulator, including any admission of an actual or attempted contravention;

(f)    the impact or consequences of the contravention on the market or innocent third parties;

(g)    the extent of any profit or benefit derived as a result of the contravention; and

(h)    whether the person has been found to have engaged in similar conduct in the past.

41    Further, the applicable intuitive synthesis requires a weighing together of all of these factors, rather than an arithmetical algorithmic process that starts from some pre-determined figure and then makes incremental additions or subtractions for each factor according to a set of predetermined rules.

42    Now in addition to the above points, I should say something on the question of aggregation. Let me make two points relevant to the present context.

43    First, in terms of the course of conduct principle, as I said in Australian Competition and Consumer Commission v Murray Goulburn Co-Operative Co Limited [2018] FCA 1964 (at [29]):

It is therefore necessary to say something on the “course of conduct” question. Separate contraventions arising from separate acts should ordinarily attract separate penalties. But a different principle may apply where separate acts, giving rise to separate contraventions, are so inextricably interwoven that they should be viewed as one multi-faceted ‘course of conduct’ such that a single penalty should be imposed for all contraventions. This provides one way of avoiding double-punishment for those parts of the legally distinct contraventions that involve overlap in wrongdoing; the other way is to apply the totality principle. But the question of whether multiple contraventions should be treated as being a single course of conduct is a factual inquiry to be made having regard to all of the circumstances. It is a ‘tool of analysis’ which can, but need not, be used in any given case. And its application and utility must be tailored to the circumstances (Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd trading as Bet365 (No 2) [2016] FCA 698 at [25]). But to apply such an approach is not to downplay the wrongdoing. This does not convert the many separate contraventions into only one contravention, and nor does it constrain the available maximum penalty let alone necessarily constrain it to the maximum penalty for one contravention. And notwithstanding a grouping into a course(s) of conduct, one must ensure that any penalty imposed is of appropriate deterrent value, whether specific or general.

44    Second, as to the totality question, I said in Westpac (No 3) (at [162]):

Where multiple penalties are to be imposed upon a particular wrongdoer, the totality principle must be considered. The totality principle means that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved. The totality principle operates as a final check to ensure that the penalties to be imposed on a wrongdoer, considered as a whole, are just and appropriate. In determining whether the final penalties are just and appropriate, the correct approach is to start by ascertaining the penalty that would be appropriate for each individual contravention and then to adjust those amounts for reasons of totality. The question of totality is not of significance in the present context.

45    Let me now address the parties’ competing submissions as to the application of these principles.

46    ASIC says that the appropriate penalties for:

(a)    the contravention the subject of declaration (a) should be $100,000;

(b)    the contravention the subject of declaration (b) should be $40,000; and

(c)    the contravention the subject of declaration (c) should be $10,000.

47    ASIC says that such penalties are appropriate and accord with my reasons. It says that Mr Mitchell’s conduct was deliberate. Moreover, it says that the contraventions constituted three separate instances of conduct. Moreover, by the application of the totality principle, it says that a pecuniary penalty of $150,000, being 25% of the maximum amount of $600,000, would be an appropriate penalty.

48    Contrastingly, Mr Mitchell submits that I should exercise my discretion not to order any pecuniary penalty, given that declarations of contravention are to be made, given the adverse publicity that he has been subjected to, and given his costs burden. It is pointed out that Mr Mitchell is 78 years of age and that more than five years of his life have been consumed by the stress of this proceeding and ASIC’s antecedent investigation. It is said that Mr Mitchell was gravely traduced by the widespread publicity that attended the bringing and prosecution of this proceeding. Further, it is pointed out that as a consequence of the commencement of this proceeding, Mr Mitchell resigned as the chairman of both Free TV Australia Ltd and Art Exhibitions Australia. And he was also the subject of damaging media coverage about the propriety of his remaining a director of Crown Resorts Ltd. In summary, it is said that all of these matters weigh heavily against the need for any pecuniary penalty.

49    Alternatively, Mr Mitchell has put forward the above factors and further factors in support of the proposition that he should pay a lesser sum than that contended for by ASIC. First, he points to the small number of contraventions. Second, he refers to the short period of time over which the contraventions occurred. Third, he says that there is an absence of any impact or consequence of the contravening conduct. He points out that the contraventions caused no damage to TA. Fourth, he points out the absence of any profit or benefit derived by him flowing from the contraventions or sought to be achieved by him in engaging in the conduct the subject of the contraventions. Fifth, he points out that in engaging in the contravening conduct he was motivated by a belief that he was acting in the best interests of TA.

50    In my view and applying the principles that I have set out, the appropriate penalty to impose on Mr Mitchell in total is $90,000. Let me briefly explain my reasons.

51    First, accepting the factual points pleaded on Mr Mitchell’s behalf, nevertheless the contraventions were serious as I have previously discussed.

52    Second, there is a need for general deterrence to ensure that other directors in analogous circumstances do not go off piste or off the reservation or whatever other metaphor one prefers, as Mr Mitchell did in his dealings with Mr McWilliam.

53    Third, I doubt that there is much need for specific deterrence given the advanced stage of Mr Mitchell’s otherwise notable career, and the significant cost to his reputation and finances that he has already incurred as a consequence of this proceeding.

54    Fourth, although in one sense the three contraventions could be seen as part of a single course of conduct, I do not see much utility in the present context in formalising any aggregation by reference to such a concept. Rather, like ASIC’s position, it is more appropriate that I stipulate separate penalty components. In this regard, I will fix:

(a)    a penalty of $50,000 for the contravention the subject of declaration (a);

(b)    a penalty of $20,000 for the contravention the subject of declaration (b); and

(c)    a penalty of $20,000 for the contravention the subject of declaration (c).

55    Any differentiation reflects the relative rankings of seriousness that should be self evident from my principal reasons. Moreover, in totality, the sum of $90,000 is apposite. In my view, such a penalty together with the declarations that I propose to make well satisfy the objective of deterrence in both dimensions. Further, there is no need to impose any other order in discharge of any protective function.

56    Let me now turn to the question of the costs of the proceeding.

57    ASIC says that there should be no order as to costs. It says that where each party has had some success in a case that was run as a whole and not in parts, no order as to costs achieves the “relevant equilibrium” between the parties. Further, ASIC says that it does not propose to exercise its statutory power under s 91 of the Australian Securities and Investments Commission Act 2001 (Cth) to recover from Mr Mitchell any part of its expenses concerning its prior investigation; I am not sure whether I should consider that to be a generous gesture on its part, but in any event that statement of present intention has been made.

58    Contrastingly, Mr Mitchell says that ASIC should pay 90% of his costs.

59    He points out that of the 44 separate contraventions alleged against him, ASIC succeeded on only three, being approximately 7%. And he says that in terms of the time and effort in the proceeding occupied by the contraventions, the proportion was even less, being in the order of 2 to 3%.

60    Further, he says that the first two contraventions were in the nature of an afterthought by ASIC. They were added by an amendment in September 2019, shortly before the trial. Further, he says that two of the three contraventions arose out of a single email exchange. Further, he says that the only material witness in respect of the contraventions was Mr McWilliam, with the contraventions otherwise taking up little time at the trial.

61    Further, he says that the proceeding followed a lengthy investigation during which ASIC conducted a raft of section 19 examinations using its compulsory powers, from which it ought to have known that, with the exception of Dr Janet Young, all of TA’s directors at the time and Mr Wood considered the domestic rights deal to be in the best interests of TA.

62    Further, he says that ASIC knew that Mr McWilliam did not support ASIC’s case either generally or as to the interpretation of the emails upon which ASIC relied.

63    In these circumstances, Mr Mitchell submits that ASIC should pay his costs of the allegations in respect of which it failed. He says that an appropriate order would be that ASIC pay 90% of his costs. He says that this percentage notionally accommodates him paying ASIC’s costs in respect of the three contraventions that I found.

64    Now in complex commercial litigation, costs disputes have been cheerlessly diagnosed as “an acute exemplar of an emerging problem” producing “secondary battle[s] in all actions” (Key Logic Pty Ltd v Blue Groper Investments Pty Ltd [2019] FCA 275 at [11] per Derrington J). The present case is no exception. But the dispute in the present case can be readily disposed of.

65    There is no relevant limitation on the power expressed in s 43(1) of the Federal Court Act as to the award of costs in the present circumstances. The discretion (s 43(3)) is unconfined, although it must be exercised judicially. But useful guidance on some of the applicable considerations has been provided in other complex litigation such as patent cases. So it was said in Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 by Bennett, Besanko and Beach JJ (at [297], [298], [301] and [303]):

There are two general approaches to the award of costs that have general application and have been the subject of numerous decisions:

(1)    The successful party is generally entitled to its costs. That is, costs usually follow the event.

(2)    It is also the case that a successful party may be awarded less than its costs, or there may be an order apportioning costs, on the basis of success on the issues.

This has been recently reiterated by the High Court (per French CJ, Kiefel, Nettle and Gordon JJ) in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at [6], where their Honours observed that if the event of success cannot be seen as contestable, having regard to how separate issues have been determined, then:

‘There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.’

…

On the other hand, Courts have been increasingly concerned, generally, to use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. This has led to decisions whereby the successful party does not recover all of its costs where it has been unsuccessful on a discrete issue or in what is decided to be an unmeritorious objection. While it is acknowledged that, ordinarily, costs follow the event, the wide discretion in awarding costs has led to circumstances where a successful party who has failed on certain issues may be ordered to pay the other party’s costs of them (as discussed in Hughes v Western Cricket Association (Inc) [1986] ATPR 40-748 per Toohey J), although warnings have been stated that care should be taken in such a course and consideration be given to whether the issues on which the successful party failed are clearly dominant or separable (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330 to 331 per Mahoney JA) and to whether the issues involved different factual enquiries in the one proceeding or multiple causes of action, even if based on a common substratum of fact.

…

Without amounting to an absolute rule, the principle remains that, subject to certain limited exceptions generally linked to the disentitling conduct of the successful party, a successful party in litigation is entitled to an award of costs ([Oshlack v Richmond River Council (1998) 193 CLR 72] per McHugh J at [67] to [68], in dissent but not in this aspect of the principle and with whom Brennan CJ agreed). That is not to punish the unsuccessful party but to compensate the successful party. There is no absolute rule that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party, nor is there a rule that there is no jurisdiction to order a successful party to bear the costs of the unsuccessful party (Oshlack at [40] per Gaudron and Gummow JJ). However, the Courts have been slow to order a successful party to pay the costs where it has been unsuccessful on some issues. In Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81, Keely J was of the view (at 84) that, without attempting to fetter the discretion, this power ought to be exercised only where the Court, on a consideration of all of the circumstances, has concluded that the raising of an issue by the applicant on which it has failed was so unreasonable that it is fair and just to make the order.

66    Derrington J in Key Logic also pellucidly observed (at [15] and [16]):

In the awarding of costs, the Court ought keep in mind that litigation is fluid and dynamic. The nature and scope of all cases vacillate during the course of the proceedings. Issues which appear to have a substantial degree of veracity at the commencement of litigation often diminish in importance whilst those which, at the commencement of the action, seem relatively minor, subsequently assume greater relevance. Indeed, new issues often emerge during the interlocutory stages and assume a centrality of importance. This fluidity is necessarily a function of the interlocutory processes where discovery and the exchange of witness statements clarify or redefine issues. It is a usual aspect of advanced litigation and parties should not suffer detriment merely because arguable issues are advanced in litigation but not successfully.

It must also be kept in mind that many issues in a case might only be fully resolved by the presentation of evidence and the effect of cross-examination. Parties are not required to abandon claims or defences which have some merit to them merely because they are not the strongest points in their case. However, where there is no reasonable justification for advancing a claim or raising a point of defence, different considerations necessarily apply.

67    The issue that arises in the present context is the exercise of my costs discretion where, as ASIC has recognised, it may be said that the event of success is contestable. How do I determine who was the “successful party”? My determination to only sustain a narrow part of ASIC’s case concerning Mr Mitchell’s conduct in the latter part of 2012 which amounted to three contraventions of s 180 does not strictly render Mr Mitchell a “successful party” in one sense.

68    In Australian Securities and Investments Commission v Flugge (No 2) (2017) 342 ALR 478, ASIC had limited success. But Robson J found that ASIC had not succeeded in respect of the allegations it had made that the defendant (at [125] to [126]):

… knew that the payment of the inland transportation fees was being made in breach of the UN sanctions and that the UN had not knowingly approved of the payments.

…

… was a hypocrite in that Mr Flugge sat on the board ticking off codes of conduct when behind the back of the board he knew of a ‘very big and dark secret, which was behaviour by senior executives of his company, directly contrary to what was in that code of conduct’, and that ‘worse than doing nothing about it, he positively encouraged management to get on and do this dirty work’.

69    Further, in relation to the allegation that the defendant had breached s 181 of the Act, Robson J stated (at [127]):

This was a very serious allegation of dishonesty against Mr Flugge. ASIC failed to make out this allegation. Importantly, ASIC did not make out its case under s 181 of the Corporations Act.

70    Now notwithstanding that ASIC had very limited success, Robson J determined that instead of ordering that each of ASIC and Mr Flugge pay a percentage of each other’s costs, the appropriate order to be made was that there should be no order for costs. I propose to take the same approach.

71    On any view, and even though ASIC has had some success, neither is it appropriate to award it any costs nor to award costs against it by some “netting off” issue by issue basis, as in essence Mr Mitchell would have it. The present proceeding has no analogy to a patent case where complex technical and legal issues can be compartmentalised, indeed ex ante with success judged ex post. Contrastingly, and putting to one side the contestable proposition of “success”, in the present proceeding there was no compartmentalisation ex ante. The forensic flow of the trial was continuous. ASIC succeeded on a small part, but it should get no costs. And as for Mr Mitchell, I am not persuaded to make any order for costs in his favour.

72    I will make orders to accord with the above reasons.

Associate:

Dated:    4 November 2020