Re Australian Securities Commission v Neil Lucas [1992] FCA 234; (1992) 7 Ascr 676 (1992) 108 ALR 521 (1992) 36 FCR 165 (1992) 27 ALD 67 (26 May 1992)

COURT

CATCHWORDS

Formal requirements of valid notice - prima facie validity of notice - onus on respondent to show notice not issued for s. 28 purpose.

Ambit of Commission's investigative powers under s. 13.

Documents sought by notice must be shown by Australian Securities Commission to relate objectively to affairs of named corporation - meaning of expression "affairs of the body" as used in s. 30.

Administrative Decisions (Judicial Review) Act 1977 (Cth), Schedule 2(f)

Australian Securities Commission Act 1989 (Cth), ss. 13, 28, 30, 33, 63 and 70

Australian Securities Commission Regulations 1990 (Cth), r. 5 Corporations Law, ss. 53 and 260

Australian Securities Commission v Dalleagles Pty. Ltd. (French J., 27 February, 1992, unreported)

Australian Securities Commission v Graco (1991) 9 ACLC 828

Australian Securities Commission v Zarro (1992) 10 ACLC 11

Cousins v Corporate Affairs Commission (1977) 3 ACLR 398

Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd. (1979) 143 CLR 499

Hare v Gladwin (1988) 82 ALR 307

Little River Goldfields NL v Moulds (1992) 10 ACLC 121

Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission [1979] FCA 15; (1979) 36 FLR 450

Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission (No. 2) [1979] FCA 64; (1979) 40 FLR 428

Norwest Holst Ltd. v Secretary of State for Trade (1978) Ch 201

Phillips v Corporate Affairs Commission (S.A.) (1986) 11 ACLR 182

R v Commission for Racial Equality; Ex parte Hillingdon London Borough Council (1982) QB 276

S.A. Brewing Holdings Ltd. v Baxt (1989) 89 ALR 105

Salter v NCSC (1988) 13 ACLR 253

Sim v National Companies and Securities Commission [1988] VicRp 87; (1988) 6 ACLC 516

Spargos Mining N.L. v Standard Chartered Australia Ltd. (No. 2) (1989) 8 ACLC 89

W.A. Pines Pty. Ltd. v Bannerman [1980] FCA 79; (1980) 30 ALR 559

Australian Securities Commission v Neil Lucas QG 3020 of 1991

HEARING

Counsel for the applicant: J.S. Douglas QC and R.J. Clutterbuck

Solicitors for the applicant: Australian Securities Commission

Counsel for the respondent: S.S.W. Couper

Solicitors for the respondent: Sly and Weigall Cannan and Peterson

ORDER

DECISION

2. The respondent, Mr Lucas, is a partner in a firm of chartered accountants, Duesburys. Duesburys was the auditor of Qintex Australia Limited and its subsidiary companies from 1980 up to the Group's collapse in November 1989. From 1986 until 1989, Mr Lucas was the partner responsible for the Group's audits. A notice in terms similar to that given to Mr Lucas had earlier been directed to Duesburys, but it is only the notice to Mr Lucas dated 29 November, 1991 which the Australian Securities Commission insists should be complied with.

3. This notice is in the following terms:

"In relation to an investigation of QINTEX LIMITED, QINTEX

AUSTRALIA LIMITED their subsidiaries and associated

corporations and persons or corporations having dealing

with the aforementioned you are hereby notified that, under

Section 30 of the Australian Securities Commission Act 1989,

you are required to produce to RAYMOND JOHN WHITBREAD

Investigation Division, Australian Securities Commission

Queensland Regional Office, at Level 22 Commonwealth Bank

Building 240 Queen Street, Brisbane at 9.30am on Friday 6

December 1991 the following books:

1 All file and working papers associated with the audit of the

accounts and group accounts of Qintex Australia Limited and

its subsidiary companies for the years 31 July, 1988 and 31

July, 1989

2 All correspondence entered into by Duesburys with Qintex

Australia Limited, Qintex Limited and their subsidiary

companies and any third parties relevant to the audit for the

years ended 31 July, 1988 and 31 July, 1989.

3 All documentation of the internal quality control and

review procedures including completed audit programmes

followed by Duesburys during the conduct of the audits of

Qintex Australia Limited and its subsidiary companies for

the years ended 31 July, 1988 and 31 July, 1989.

4 The Duesburys audit manual/quality control manual used during

the conduct of the audits of Qintex Australia Limited and its'

subsidiary companies for the years ended 31 July, 1988 and 31

July, 1989.

5 All permanent audit files for Qintex Australia Limited

and Qintex Limited.

6 File and working papers in relation to management of

the audit including but not restricted to staff scheduling,

audit planning memoranda, fee budgets and a comparison to

actual, time ledgers, and audit risk areas."

"However having regard to the publicly available information

regarding steps which the Commission has already taken, our

clients have concluded that the Commission suspects

contraventions, by those associated with Qintex Limited,

which would provide a basis for an investigation.

Our clients have no wish to be obstructive and we are

instructed that our clients will produce the documents

referred to in paragraphs 1, 2 and 5 of the notice directed

to Mr N. Lucas."

(a) internal quality control documents relating

specifically to the Qintex audit;

(b) review procedure documentation relating specifically

to the Qintex audit; and

(c) completed audit programs followed by Duesburys during

the conduct of the audit of Qintex Australia Limitedq

and its subsidiary companies for the years ended 31

July, 1988 and 31 July, 1989.

7. At the hearing, this objection was developed by way of two submissions: firstly, that the material before the Court disclosed neither the existence of any possible contravention of the law by any person nor any belief held by any relevant authorised person on behalf of the applicant that such a contravention may have occurred and that, in consequence, there was no evidence of the foundation necessary to permit the giving of a s. 30 notice. Secondly, it was submitted that the documents in contention do not objectively relate to the conduct of the affairs of the Qintex Group companies but instead, to the internal conduct of the auditors, i.e., to the way in which Duesburys manages and conducts its own business.

8. A third submission was that the notice is invalid because it failed to identify on its face the basis upon which the requirement by the applicant to produce the documents was within the power conferred by s. 28 of the Act.

9. Section 70 of the Act under which this application is brought provides:

(1) This section applies where the Commission is satisfied

that a person has, without reasonable excuse, failed to

comply with a requirement made under this Part (other than

Division 8).

(2) The Commission may by writing certify the failure to the Court.

(3) If the Commission does so, the Court may inquire into

the case and may order the person to comply with the

requirement as specified in the order.

The Commission may give to:

(a) a body corporate that is not an exempt public

authority; or

(b) an eligible person in relation to such a body

corporate;

a written notice requiring the production to a specified

member or staff member, at a specified place and time, of

specified books relating to affairs of the body.

12. The Commission's entitlement under s. 30 to issue a notice of the kind here in question is not limited only by the terms of that provision. Section 28 of the Act provides:

A power conferred by this Division (other than

sections 29, 35 and 36) may only be exercised:

(a) for the purposes of the performance or exercise of any

of the Commission's functions and powers under a

national scheme law of this jurisdiction; or

(b) for the purposes of ensuring compliance with a

national scheme law of this jurisdiction; or

(c) in relation to:

(i) an alleged or suspected contravention of a

national scheme law of this jurisdiction; or

(ii) an alleged or suspected contravention of a law

of this jurisdiction, being a contravention that

concerns the management or affairs of a body

corporate, or involves fraud or dishonesty and

relates to a body corporate, securities or

futures contracts; or

(d) for the purposes of an investigation under Division 1.

13(1) The Commission may make such investigation as it

thinks expedient for the due administration of a national

scheme law of this jurisdiction where it has reason to

suspect that there may have been committed:

(a) a contravention of a national scheme law; or

(b) a contravention of a law of the Commonwealth or

of a State or Territory, being a contravention that:

(i) concerns the management or affairs of a body

corporate; or

(ii) involves fraud or dishonesty and relates to a body

corporate, securities or futures contracts.

13(2) Where the Commission has reason to suspect that unacceptable

circumstances within the meaning of Part 6.9 of the

Corporations Law of this jurisdiction have, or may have,

occurred, the Commission may make such investigation as it

thinks expedient:

(a) for the purposes of determining whether or not

to make an application under subsection 733(1)

or 734(2) of that Law; or

(b) otherwise for the due administration of a

national scheme law.

13(3) Where the Commission has reason to suspect that a

contravention of a relevant previous law of this

jurisdiction may have been committed, the Commission may

make such investigation as it thinks appropriate.

13(4) Neither of subsections (1) and (3) limits the

generality of the other.

13(5) Where:

(a) immediately before the commencement of this

subsection, the NCSC was investigating a matter

under a relevant previous law of this

jurisdiction; and

(b) either or both of subsections (1) and (3)

empower the Commission to investigate that matter;

then:

(c) the Commission may continue the NCSC's

investigation of that matter; and

(d) the investigation, as continued by the

Commission, is taken to be an investigation

under that subsection, or each of those

subsections, as the case may be.

14. Counsel for the respondent's third submission was that a notice under s. 30 of the Act must contain sufficient information to show that it was given for a purpose comprehended by s. 28. It is appropriate to consider this question first.

15. If the problem is looked at only as a matter of construction, I think the respondent's argument is untenable: s. 30 appears to identify all the information that has to be set out in a notice if it is to be effective to impose on the recipient an obligation to produce documents: the notice must be a requirement in writing for "the production to a specified member or staff member "(of the applicant)", at a specified place and time, of specified books relating to affairs of the body" corporate identified in the notice.

16. It is true that by s. 28 of the Act, the power to require production of documents by notice issued under s. 30 is only exercisable by the Commission for one or more of the four purposes specified in s. 28. But there is no obvious justification for implying into the clear words of s. 30 a further requirement that, in addition to the matters which s. 30 requires to be specified in the notice, there must also be stated in the notice sufficient information to show that it is being issued in circumstances in which the Commission has power under s. 28 to take that action.

17. This view is supported by comparing s. 19 of the Act with s. 30. The absence of any requirement for notices issued under s. 30 similar to that in s. 19(3)(a) for notices issued under s. 19(2) supports the view that s. 30 lists exhaustively all the material which must be stated in the notice, if it is to be effective in form.

18. The structure of Division 3 of Part 3 of the Act, with s. 30 conferring power to issue a notice and the limitations on the purposes for which that power can be invoked being contained in a separate section, s. 28, is also significant. I reject the respondent's submission to the contrary. The modern view is that the layout of an Act can be considered in construing any of its provisions: see Bennion, 1984 Statutory Interpretation at page 593. The structure of Division 3 of Part 3 of the Act is, I think, a further indication that the legislative intent is to place upon the investigative power conferred on the Commission by s. 30 the minimum of formal requirements that the Commission has to meet in order to impose an enforceable obligation to produce documentation.

19. However, the respondent relied upon decisions on s. 264 of the Income Tax Assessment Act 1936 (Cth) and s. 155 of the Trade Practices Act 1974 (Cth) as containing statements of principle which are said to justify the implication contended for since non-compliance with a notice is an offence punishable by severe penalties and the recipient cannot appeal against the issue of the notice.

20. As to this last-mentioned point, while there is now no equivalent to the appeal provided for by s. 537 of the Companies (name of State) Code, the recipient of a notice can still take the initiative to challenge the issue of a notice. Davies J., in Little River Goldfields N.L. v Moulds (1992) 10 ACLC 121, held that there was jurisdiction to review the issue of notices under Division 3 of Part 3 of the Act saying (at page 129) that while he would not regard a decision by the Commission to enter upon an investigation as a reviewable decision under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the AD(JR) Act"):

"The notices which are under challenge stand, however, in a

different position for they are formal acts which impose

obligations upon the recipients."

22. Section 264(1)(b) of the Income Tax Assessment Act empowers the Commissioner by notice in writing to require any person to attend and give evidence before him concerning his or any other person's income or assessment, and to require that person to produce all documents in his custody relating thereto.

23. In Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd. (1979) 143 CLR 499, it was accepted that a notice given under s. 264(1)(b) to the Bank requiring production of all documents in certain safe deposit boxes, without limiting the obligation to those documents which related to the income or assessment of a named person, was invalid. However, notices in terms requiring production of all documents in the safe deposit boxes being documents which related to the income or assessment of taxpayers named in the notices were held to be valid.

24. The formal requirements of a valid notice to produce documents issued under s. 264(1)(b) were discussed by Gibbs A.C.J. at page 525 and by Mason J at pages 536-538.

25. When Gibbs A.C.J. said, at page 525, that the notice "must show the person to whom it is addressed that any document which he is required to produce is one whose production the Commissioner is entitled to require" and when Mason J. said at page 538 that "it is for the Commissioner so to formulate his notice that this limitation on his authority is drawn to the attention of the recipient", they were not suggesting that implications should be made in the wording of s. 264(1)(b) to require matters additional to those expressed in that section to be stated in a notice for it to be effective to impose an obligation on the recipient.

26. That appears from what Gibbs A.C.J. said at page 525 and from what Mason J. said at page 537, as follows:

"What paragraph (1)(b) has in mind is that a notice may be given

requiring the recipient to produce "all books, documents and other

papers" in his custody or control "relating thereto", that is, to the

income or assessment of the person whose name is stated in the

notice. It is then for the recipient to decide for himself,

difficult though the task may be, which of the documents answer the

description. If his decision is wrong he exposes himself to

prosecution and penalty.

The existence of this hazard is not a sufficient basis for

the conclusion that the section requires the Commissioner to

give a notice in such terms as would enable the recipient on

reading it and on examining the documents in his custody or

control to determine whether they fall within the ambit of

the Commissioner's powers. ... Not only would the suggested

requirement frustrate the object of conferring the power, it

would be inconsistent with the section as I have explained

it." (per Mason J.)

It is established by three decisions of the Full

(a) it must disclose on its face sufficient information to

identify the "matter" with respect to which the

recipient of the notice is thought to be capable of

giving information, evidence or producing documents;and

(b) the notice must contain sufficient information to

disclose the necessary relationship between the

information or documents sought and the matter in

respect of which that material is sought.

"A statutory basis for the entitlement disclosure condition

under s 155 was propounded by Davies J. in Bannerman v

Mildura Fruit Juices Pty Ltd [1984] FCA 156; (1984) 55 ALR 367 at 375-6

where, after referring to Snow v Keating, supra, and FCT v

Australia and New Zealand Banking Group Ltd, supra, he said:

`Section 155 of the Trade Practices Act 1974 (Cth)

must be given effect in like manner. Not only does

the section provide a penalty for breach of the

obligation imposed upon the recipient of the notice,

but s 155(1) in terms does not empower the chairman to

require the recipient of the notice to provide any

information whatever or any document whatever but only

"such information" and "such documents" that is to

say, information and documents "relating to a matter

that constitutes, or may constitute, a contravention of this Act."

That approach was not addressed in the joint judgment of Bowen

C.J. and Neaves J. ...

Agreeing, as we do, with their Honours' view of the utility

and desirability of the requirement, it finds its roots and

ultimate justification in a proper construction of s 155(1)

as enunciated by Davies J. And on that basis it emerges as

an aspect of the statutory power able to be discerned in the

words of the statute."

30. Contrary to another of the respondent's submissions, decisions on the precursor of s. 30, s. 12(3) of the Companies Code of each State, are I think relevant to the construction of s. 30. The structure of s. 12 of the Companies Code is similar to that of Division 3 of Part 3 of the Act: while s. 12(3) of the Code (like s. 30 of the Act) conferred power on the Commission to require by notice another to produce documents relating to the affairs of a corporation, s. 12(1) of the Code (like s. 28 of the Act) declared that those powers "shall not be exercised except" for certain purposes specified in that sub-section. See also the Explanatory Memorandum to the Australian Securities Commission Bill 1988, paragraphs 104 and 108.

31. The decision in Phillips v Corporate Affairs Commission (S.A.), (1986) 11 ACLR 182, was accepted as establishing that a notice issued under s. 12(3) of the Code, to be formally valid, need not identify the purpose in s. 12(1) of the Code for which the notice was given. See Salter v NCSC (1988) 13 ACLR 253 at 259-260; National Companies and Securities Commission v Watson (1989) 15 ACLR 195 at 206. It seems clear that this conclusion was reached in Phillips as a matter of construction of the section: see page 190 of the report, where the following passage appears:

"... there is no legal requirement precisely to define those

purposes in the notice so long as the CAC can in fact, if

called upon to do so, identify them as the basis for

exercise of the power;"

33. There are good reasons for thinking that the relevant provisions of the Act have been carefully drawn to achieve this result: in Spargos Mining N.L. v Standard Chartered Australia Ltd. (No. 2) (1989) 8 ACLC 89 at 94-5, McLelland J. said of a notice issued under s. 12 of the Companies Code:

"Nevertheless it is necessary to avoid any notion that the

requirements of a notice under s. 12 are to be treated as merely

contingent upon confirmation by the Court. (See Dwyer at ACLC p 573,

NSWLR p 287.) In this regard the Court will be concerned to ensure

that undue delay in obedience to the requirements of such a notice

does not occur under the cover of unmeritorious appeals.

One should, I think, have regard to the purpose of s. 12 notices,

which is to aid investigations, which purpose could well be seriously

frustrated by undue delays in the requirements of notices of that

kind being obeyed.

... it would not be realistic to leave out of account the impact of a

stay of a notice under s. 12, or an injunction restraining its

enforcement, upon the efficient processes of processes of

investigation in aid of which the powers under s. 12 are conferred."

35. In Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission [1979] FCA 15; (1979) 36 FLR 450 at 456, Smithers J. said of s. 155 of the Trade Practices Act:

"Parliament's intention would be frustrated if the obligation of the

person to whom a notice is - +directed arose not on the receipt of

the notice but only after the recipient or the court was satisfied

that the Chairman in issuing the notice had the specified reason to

believe."

"Many of the submissions made in relation to the form of the notice

seemed to me to be based on a suggestion that the recipient was in

some way entitled to know precisely what the suspected contravention

was or the particular matter in the return that the documents sought

might relate to. But an investigator is not obliged to provide this

information."

38. I hold that the notice here in question is in form a sufficient compliance with the requirements of the statute.

39. I note that in the notice the respondent is told that production is required "in relation to an investigation of Qintex Limited and its subsidiaries and associated corporations". Consistently with what I have said, I doubt the necessity for the notice to contain that information. However, Regulation 5 of the Australian Securities Commission Regulations 1990 requires a notice issued under s. 30 to be in Form 2, which calls for such a statement. Regulation 5 was not referred to in argument, but I do not think it requires any change to the conclusion I have reached as to what are the formal requirements of a valid notice.

40. There are, of course, good reasons why the Commission may elect to include in the notice or to otherwise inform the recipient of the notice of the purpose for which it is issued. If it does not do so, it may, for example, find itself confronted with refusals to comply which would not otherwise take place; it may, as Phillips recognises at page 190 of the report, be necessary in other cases for something of the purpose for which the notice is given to be revealed in the notice itself in order to identify precisely what it is that the recipient of the notice is required to produce. A failure to identify the relevant s. 28 purpose in the notice or in an accompanying letter or when subsequently requested may expose the decision to issue the notice to attack on the ground that the power to issue the notice was not being used bona fide for the purposes for which the power was conferred. But none of those considerations requires a conclusion that, as a matter of construction, the notice must contain information identifying the purpose authorised by s. 28 for which the notice is given.

Lack of evidence of a foundation for the issue of the notice

41. The respondent's first submission was that the material before the court discloses neither facts indicating the possible commission by any person of a contravention of any relevant law nor facts which show that the Commission (or any officer of the Commission appropriately authorised) holds a suspicion that any such contravention may have been committed by any person. The submission then is that, because of this want of evidence, the applicant has failed to establish in these proceedings the existence of the foundation necessary to permit the giving of the notice under s. 30 of the Act.

42. Implicit in this argument is the proposition that even if the notice here in question is sufficient in form, once it is challenged the Commission has the onus of satisfying the court that the notice was given for a purpose permitted by s. 28. In argument, the Commission's attitude to this proposition changed from initially rejecting it to finally conceding that the Commission may have such an onus, while going on to submit that it had led evidence here which was sufficient to discharge that onus.

43. There is nothing in the wording of any of the provisions of Division 3 of Part 3 or Division 7 of Part 3 (which contains ss. 63 and 70) of the Act to justify an interpretation of ss. 30, 63 or 70 requiring the Commission to prove that a notice issued under s. 30 which is formally sufficient was given for a purpose permitted by s. 28, if the issue of a notice is challenged.

44. However, I have already referred to the passage in Phillips v Corporate Affairs Commission (S.A.) at page 190, which was accepted by Olney J. in Salter v NCSC as establishing that, while there was no legal requirement to define in a notice issued under s. 12(3) of the Companies Code the particular purpose which would by reason of s. 12(1) of the Code authorise the issue of the notice, it was necessary for the NCSC to be able to prove that the notice was given for a permitted purpose, if the notice were challenged. Phillips itself came before the court by way of a summons for declarations that the notice was ineffective to require production of the documents demanded and there was no discussion of the reasons for the conclusion that the CAC carried the onus mentioned.

45. The only discussion of why such a conclusion is justified is contained in the judgment of Olney J. in Salter v NCSC. This was an appeal under s. 537 of the Companies (Western Australia) Code against the decision to issue the notices. His Honour held that because such an appeal involved a hearing de novo, "there is cast upon the Commission an obligation to justify the exercise of power which the appellant seeks to put in issue" (page 259). The only evidence relied on by the NCSC was the assertion in the notice itself that the NCSC had reason to suspect that the recipient had contravened a particular section of the Code in relation to a named company. The recipient led detailed evidence, not challenged by the NCSC, which showed that no such offence could ever have been committed. Of the Commission's argument that the statement in the notice was sufficient to establish in the appeal proceedings that the issue of the notice was within power, Olney J., at page 260, said:

"If that were so then the right of appeal, given in the widest

possible terms by s. 537, would be negated. On the Commission's

argument all that it would need to do in any case would be to make an

assertion in a notice which on the face of it indicated that the

exercise of power is within the scope of the Code and it could never

thereafter be called upon to justify its claim to reasonable belief

or whatever other fact might be relied upon. However inconvenient it

may be to the Commission, s. 537 has an extremely wide scope and

there can be no justification for construing it otherwise than in

accordance with its terms."

47. Quite apart from the width of review available under the AD(JR) Act, it is now established that the exercise of a power to issue a notice in aid of a statutory investigative power, which is conditioned upon an official having reason to believe something, is open to judicial review. But in W.A. Pines Pty. Ltd. v Bannerman (1980) 30 AR 559, Brennan J. (Bowen C.J. agreeing) at page 567 said, in a case in which the issue of a notice under s. 155 of the Trade Practices Act by the Chairman of the Trade Practices Commission was under challenge:

"But such a challenge requires the applicant to show that

the Chairman has no reason to believe that the person to

whom the notice is given is capable of furnishing

information, producing documents or giving evidence relating

to the investigation which the Commission has in hand, being

an investigation of a contravention or what reasonably can

be suspected to be or to be about to be a contravention."

49. This onus, as Brennan J observed in W.A. Pines Pty. Ltd. v Bannerman at page 568, is "most difficult to discharge".

50. Hare v Gladwin (1988) 82 ALR 307 is a decision to like effect on a similar power in the Commonwealth Electoral Act. See also Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission [1979] FCA 15; (1979) 36 FLR 450 per Smithers J. at pages 456-458 and 460 and Franki and Northrop JJ. at 478-479. The tentative qualification by Franki and Northrop JJ. in Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission at page 479 cannot I think now be regarded as justified: when a notice issued under a statutory power is challenged on the ground that the power has been exercised improperly, both at common law and in proceedings under the AD(JR) Act it is the person impeaching the exercise of the power that bears the onus of establishing impropriety in the exercise of the power. See Industrial Equity Ltd. v Deputy Commission of Taxation [1990] HCA 46; (1990) 170 CLR 649 at 671-2 and Australian Securities Commission v Dalleagles Pty. Ltd. (French J., 27 February, 1992, unreported) in which French J., in a claim by a respondent for an order for discovery against the Commission in s. 70 proceedings based upon the respondent's non-compliance with a s. 33 notice, reviewed the authorities and said:

"Where the exercise of statutory investigative powers is

involved, the court, having regard to legislative policy

underlying the grant of such powers, has required applicants

for judicial review to disclose some basis for impugning

that exercise of power before it will order discovery

against the decision maker." (at page 13)

52. This was the view of Davies J. in Little River Goldfields N.L. v Moulds. His Honour there rejected suggestions that the recipient of notices issued under ss. 19, 31 and 33 of the Act was not bound to comply with them because the Commission had failed to justify the investigation in aid of which the notices were given by disclosing the material which it had to show that a contravention had occurred saying, at page 129:

"Mr Kalaf submitted that no officer of the Commission or any person

previously connected with the investigation could have had reason to

suspect that there had been a contravention of s. 128 of the

Securities Industry Code.

...

The challenge on this ground must fail. No attempt has been made to

prove what was the material before Mr Moulds at the time he

recommended the investigation or before the Commission at any time

in the course of the investigation. In the absence of proof as to

what this material was, it could not be held that the actions taken

in the course of the investigation were entirely without foundation

or were unreasonable or not bona fide or that material factors were

ignored."

(And at page 130):

"But such an approach is not correct. The Commission may undertake

an investigation provided that the belief is held that a

contravention may have occurred and provided that the investigation

is undertaken bona fide for the purpose of ascertaining what were

the facts of the matter and whether a prosecution should be

commenced. If any challenge is made to the investigation, the

Commission is not bound to justify its action. The onus lies on the

challenger to establish lack of bona fides etc. ..."

54. Although there is a powerful policy reason why it might be thought that the Commission should be fixed with the burden of proving that a notice, once challenged, was given for an authorised purpose, it is exactly that sort of policy which has been universally rejected by the cases which fix the challenger with the onus of proving that a statutory power conditioned upon the existence of reasons for a specified belief has been exercised for an unauthorised or improper purpose.

55. It is not necessary now to decide whether the nature and ambit of the inquiry provided for by s. 70 is a narrow one, i.e., the inquiry into whether the recipient of a demand has reasonable excuse for his failure (as certified by the Commission) to comply with it or whether such an inquiry is wide enough to require a review of the Commission's decision to issue a notice that is similar to an appeal that takes the form of a hearing de novo. But even if proceedings under s. 70 are of the latter kind, that the question of the propriety of the exercise of the power to issue a notice arises in such a proceeding does not I think justify a conclusion that established legal principles, such as the rule which casts on the challenger the onus of proving that a statutory power was exercised for an unauthorised or improper purpose, are excluded. The court in Salter v NCSC proceeded on a contrary assumption - see pages 259-260 of the report. It appears, however, that no argument was put to the court in that case, that the general rule is that a person challenging the exercise of a statutory power for impropriety bears the onus of proving that issue. That general rule is inconsistent with the sort of consideration identified at page 260 of the report in Salter v NCSC as the justification for holding that an appeal under s. 537 of the Companies Code being de novo, the authority issuing the notice had to prove that there were grounds for the reason to believe which was the statutory pre-condition for there being power to issue the notice. Neither Salter v NCSC nor W.A. Pines Pty. Ltd. v Bannerman is binding on me. In my respectful view, however, the conclusion reached in Salter v NCSC, with respect to what the NCSC had to prove when the issue of a s. 12 Code notice was challenged, which was based on the proceedings being a hearing de novo, is not consistent with the reasoning in W.A. Pines Pty. Ltd. v Bannerman, which I should apply as a decision of the Full Court of this Court.

56. In my view, if the Commission issues a notice that is sufficient in form, it is not under any obligation to prove that the notice was given for a purpose permitted by s. 28: irrespective of the form of proceedings in which that question is put in issue by the recipient of the notice, the notice will stand as a valid exercise of power unless the recipient discharges the onus of proving that the power was not exercised for a purpose expressly authorised by the statute just as he bears the onus of proving that the power was exercised in bad faith.

57. Although I therefore do not think the Commission was bound to do so, it elected at the outset to put evidence before the court to establish that the notice here in question was given for a purpose permitted by s. 28; it also obtained an adjournment to supplement that evidence.

58. Even if it can be concluded that all of the material upon which the Commission can rely to show that the notice was issued for a purpose permitted by s. 28 is now exposed, so that it would be open to the court to determine the question of the propriety of the issue of the notice, I am not prepared to find that the notice was not issued for a purpose permitted by s. 28.

59. The Commission ultimately only sought to justify the issue of the notice on the ground that it was given for the purpose of an investigation under Division 1 of Part 3 of the Act.

60. A determination dated 6 February, 1991, by a Commission investigator to whom the Commission had delegated its powers and functions under Part 3 of the Act, evidences the fact that the Commission has decided to continue the NCSC investigation into "Qintex Limited, Qintex Australia Limited (Receivers and Managers Appointed), its subsidiaries, associated corporations and persons or corporations having dealings with any of the foregoing" because there was reason to suspect that a contravention of a national scheme law or of a relevant previous law may have taken place. It is the Commission (or its authorised delegate, Mr Barlow) who holds this suspicion, according to what is said in the last paragraph of the determination. The determination does not identify what the suspected contraventions are. This omission does not invalidate the determination as evidence that an investigation so based is under way: cf. Little River Goldfields N.L. v Moulds at 128 and 129.

61. There is uncontradicted evidence which shows that the Commission is carrying out the investigation I have referred to, an investigation s. 13(3) if not s. 13(1) of the Act, would have authorised it to initiate, even if the NCSC had not already commenced the original investigation. It follows that s. 13(5)(c) authorises the Commission to continue this particular investigation which, by s. 13(5)(d) of the Act is to be taken to be an investigation under s. 13(3) of the Act.

62. The evidence also shows that the NCSC investigation which the Commission's delegate determined to continue involved hearings at which persons (including the respondent) were summonsed and examined by the NCSC delegate, Mr Florence. It also shows that, while this investigation is still continuing as an Australian Securities Commission investigation, criminal proceedings have so far been brought against one officer of Qintex Australia Limited. A Commission investigator, Mr Wilson, says that "as part of the investigation into the Qintex Group, the Australian Securities Commission is presently investigating the accuracy of the books of account and records of the Qintex Group for the years ended 31 July, 1988 and 31 July, 1989 as there is reason to suspect that a contravention of relevant previous laws of this jurisdiction may have been committed in respect of the obligation to make available or furnish accurate information relating to the affairs of the corporations in that group".

63. The ambit of the investigation now being conducted by the Commission is very wide indeed. There is no reason, however, to doubt that the Commission is empowered to conduct just such an investigation.

64. It is apparent from s. 13(5) that the foundation of the Commission's power to continue the NCSC investigation is that the NCSC investigation must have been into a matter into which the Commission could itself have initiated an investigation of similar ambit pursuant to s. 13(3). Under s. 13(3), provided the Commission has reason to suspect that a contravention of the relevant previous law may have been committed, there is no express limit on the investigation the Commission may make, other than it must be "such investigation as it thinks appropriate". The sub-section does not, in terms, confine the permitted investigation to an investigation into the suspected contraventions.

65. Davies J. declined an invitation to hold that the investigative power was so limited in Little River Goldfields N.L. v Moulds, saying at 129:

"Mr Kalaf further submitted that, as Mr Moulds' affidavits mentioned

only two transactions, the purchases by Theresa Lee, the

investigation must necessarily be limited to those two transactions.

Mr Kalaf submitted that the Court should make an order declaring what

was the ambit of the investigation so as to ensure that the

investigation did not trespass into other areas, e.g., into purchases

by companies and others with whom the Lee family may be connected.

However, the approval for the investigation given by Ms Taylor

contained no clearly identifiable limits for the approval referred to

the preliminary review report of Mr Moulds. Moreover, even had it

originally been contemplated that the investigation would be limited

to the purchases of shares by Theresa Lee, that would not be a reason

why an extended investigation should not now be authorised under s.

13 of the ASC Law."

67. Firstly, there are indications in the Australian Securities Commission Act that the investigative powers conferred on the Commission by, for example, s. 13 are designed to enable the Commission to perform wider functions in overseeing and regulating corporate activity than the limited function of investigating whether there has in fact been a contravention of the specific kind suspected. Section 1(2) of the Act requires the Commission to strive, in performing its functions and exercising its powers (which would include its powers of investigation under s. 13) "(a) to maintain, facilitate, and improve, the performance of companies, and of the securities market and futures markets, in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy" and "(b) to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors". It is difficult to see how it could fulfil this charge when exercising its investigative powers if it can only carry out an investigation into whether a specific suspected contravention has occurred. Under s. 17, at the end of an investigation under s. 13, the Commission is empowered to prepare a report to the Minister about the investigation which must set out not only the Commission's findings about the matters investigated, but also "such other matters relating to, or arising out of, the investigation as the Commission thinks fit or the Minister directs".

68. These provisions indicate that, once the Commission is entitled to undertake an investigation under s. 13, the ambit of that investigation is not to be narrowly circumscribed by a requirement that it must be limited to determining whether or not the particular contravention that it suspected and which was the occasion for the undertaking of the investigation in fact occurred. Given the Commission's duties and functions under the provisions mentioned, an investigation commenced because the Commission suspects a particular contravention should be seen to provide the occasion for the Commission to conduct an investigation, at least wide enough to enable it to perform any of these functions.

69. Secondly, the fact that s. 13(1) confers on the Commission in express terms a very wide power of investigation once the pre-condition relating to suspicion is satisfied provides no reason for reading the perhaps less expansive wording of s. 13(3) as limiting the investigation the Commission is thereunder empowered to make to such investigation as it thinks appropriate into the particular contravention which it has reason to suspect may have been committed: see s. 13(4).

70. Thirdly, s. 13(5) of the Act indicates by the use of the expression "matter" in clause (b) that the subject matter of an investigation under ss. 13(1) and (3) is not a suspected contravention of the law, but something wider than that. This view is consistent with the words in each of ss. 13(1) and (3) which describe the scope of the investigations permitted under those two provisions in wide terMs

71. The cases relied on by the respondent to justify confining an investigation under s. 13 to an investigation into the particular contraventions suspected do not support the argument. The statements in Sim v National Companies and Securities Commission [1988] VicRp 87; (1988) 6 ACLC 516 at 524 referred to by the respondent were made in the course of considering whether the evidence the NCSC chose to put before the court was sufficient to prove it held the suspicion "which forms the basis for an investigation under sec. 16A of the Code". No consideration was given to the question of the scope of the investigation permitted by this section if the founding suspicion was proved (it being there assumed without argument that it was for the NCSC to prove that suspicion). De Greenlaw v National Companies and Securities Commission (1989) 7 ACLC 789 provides no support to the respondent for the same reason. The statutory regime considered in R v Commission for Racial Equality; Ex parte Hillingdon London Borough Council (1982) QB 276 under which that Commission was empowered to conduct an investigation if it believed that a specific person had engaged in unlawful discriminatory practices, which investigation Griffiths L.J. (at 293) said was limited to the particular discriminatory acts the Commission thought had been committed, is significantly different from the regime of which s. 13 forms part.

72. Suspicion by the Commission of one or more possible contraventions can therefore properly trigger a very wide-ranging investigation into the activities of a company or group of companies and persons associated therewith.

73. Of course, the investigatory power conferred on the Commission by s. 13(3) is subject to the usual implied limitation that it is a condition of the valid exercise of the power that it be used in good faith for the purpose for which it was conferred. A decision by the Commission to embark on a very wide ranging investigation founded upon suspicion of a single trivial contravention would leave the decision to mount the investigation open to attack as a power exercised in bad faith (always assuming that the challenger could discharge the onus of proving those facts).

74. In any event, the evidence here indicates that the Commission in fact determined to continue an NCSC investigation of very wide ambit. There is no reason to find that the investigation was not undertaken in circumstances in which the Commission or its delegate entertained sufficient reason to suspect contraventions of relevant previous laws. There is nothing in the evidence before me that would justify a conclusion that the Commission's decision to continue this NCSC investigation of very wide ambit is infected with any impropriety. The attack, mounted on the theory that once the notice is challenged it is for the Commission to establish that it was given for a permitted purpose (an attack which can be pressed here even though the respondent has not led any evidence on the issue because the Commission has chosen to put some evidence before the court on this issue), fails.

75. If in a particular case the ambit of the investigation which the Commission had originally determined to undertake was a narrow one, for example, an investigation into whether a particular person had committed a particular contravention, then the investigation would have to be confined to that subject matter. But if information was obtained by the Commission in the course of that narrow investigation to suggest that the ambit should be widened, there is nothing to prevent the Commission following that course. In such a situation it would be necessary for the Commission or its delegate to decide to expand the ambit of the investigation, a course he could follow if during the original narrow investigation he developed reason to suspect that contraventions other than that originally suspected may have occurred. See Australian Securities Commission v Graco (1991) 9 ACLC 828 at 832. This is the position whether or not the Commission's decision as to the scope of the initial investigation or its decision to widen the scope of an initially narrow investigation is ever publicly revealed.

76. If the ambit of the investigation the Commission initially undertook to continue, as identified in the evidence, had been a narrow one there would, I think, be force in the respondent's submission that before it could be extended to cover the issues referred to in Mr Wilson's affidavit, there would have to be a decision to so expand the investigation by someone appropriately authorised by the Commission. But the question of the authority of people such as Mr Wilson to expand a Commission investigation does not arise here because no extension decision is necessary in view of the wide ambit of the original investigation. This is wide enough to authorise the examination of the particular matters referred to by Mr Wilson as part of the original NCSC investigation, as continued by the Commission.

Do the documents in issue relate to the affairs of the Qintex Group?

77. The submission here is that the documents in contention do not objectively relate to the conduct of the affairs of the Qintex Group companies but instead, to the internal conduct of the auditors, i.e., to the way in which Duesburys manages and conducts its own business.

78. Australian Securities Commission v Zarro (1992) 10 ACLC 11, involved an application by the Commission under s. 70 in respect of the failure of a bank to comply with a notice issued to it under s. 33. While the notice was expressed to be given in relation to an investigation of the affairs of a nominated group of companies, it called for production by the bank of records relating to nominated individuals; there was nothing in the notice, apart from a bald assertion, to show that the documents demanded related to the affairs of any of the companies. However, the Commission put extensive evidence before the court which the court accepted as showing that there was, in fact, a relationship between the documents sought and the affairs of the company. Spender J. there held that, while at the time of service of the notice there was nothing to show to the recipient bank that the documents demanded related to the affairs of any of the companies specified in the notice, in the proceedings before him the Commission was able to establish by evidence that, as a matter of objective fact, the documents sought did relate to the affairs of at least one of the corporations mentioned in the notice and that this was all that s. 33 required.

79. In my opinion, his Honour's approach to s. 33 (which is equally applicable to s. 30) is correct. Both sections authorise the making of a demand for production of only such documents as relate to the affairs of a nominated corporation. Although for the reasons given, a notice under s. 30 containing no more than the limited information required by s. 30 is prima facie valid as an exercise of the power for a s. 28 purpose without any further proof by the Commission, the requirement that the documents demanded in the notice must relate to the affairs of a corporation is not conditioned in any way upon the Commission having a belief as to such a relationship: that particular requirement is absolute. The position here is to be contrasted with that which arises under s. 155 of the Trade Practices Act, as to which, see Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission (No. 2) [1979] FCA 64; (1979) 40 FLR 428 at 434.

80. It therefore follows, in my opinion, that whether the issue of a notice is challenged in proceedings under ss. 63 or 70 or under the AD(JR) Act, it is for the Commission to establish by objective evidence the requisite relationship.

81. It was also submitted that, if the evidence established suspected contraventions by persons associated with the Qintex Group of Companies, the documents in contention cannot be said objectively to relate to any such suspected contraventions. There is no support in the Act for such a requirement. An investigation under s. 13 is not necessarily limited to the suspected contravention that triggered it. The Commission's investigation is not so limited here. The only relationship that it is necessary to establish is between the documents demanded and the affairs of the corporation.

Is the necessary relationship shown here?

82. It is apparent that the ambit of the investigation is very wide; the investigation must be extremely complex.

83. A guide to what is comprehended by the expression "affairs of the body" corporate in s. 30 is provided by s. 53 of the Corporations Law, a provision to which regard can be had for this purpose because of the definition of "affairs", in relation to a body corporate, in s. 5 of the Act which gives that expression in the Act the same meaning as it has in s. 260 of the Corporations Law. The expression "affairs of the company" in s. 260(1)(b) of the Corporations Law is defined by s. 53 of that Law to include the wide range of matters referred to in (a) to (k) of the last-mentioned provision.

84. Quite apart from these statutory provisions, the concept of the affairs of a corporation is a very wide one indeed. In Cousins v Corporate Affairs Commission (1977) 3 ACLR 398, it was held that in relation to an inspector's examination (which was by statute restricted to the asking of questions relating to the affairs of the particular company under investigation) into how the contract of audit was carried out, what advice was given or withheld and what was the ambit of the auditor's operation were all properly categorised as "affairs of the company". Helsham C.J. in Eq, said at pages 401-402:

"his (an auditor's) actions, conversations, advices and

report, his methods and his beliefs as to what his functions

were, are just as relevant to the discovery of how the

company conducted its business affairs as those of the

directors. Investigation of these aspects may indeed supply

the reason why the company through its directors or managers

or others conducted or did not conduct its business

operations in a certain way.

The auditor in this case, I suppose in all cases, had a

contract with the company and the performance of that

contract is, I have no doubt, properly categorized as an

affair of the company. The manner in which that contract

has been performed must involve ascertainment of what the

auditor did and did not do, assessed in conjunction with all

the relevant circumstances. Questions of what advice was

given or withheld, and the ambit of the auditor's operations

as auditor must be relevant to that performance, as well ...

The conduct of an auditor in and about the performance of

his duties relates or may relate directly or indirectly to

the control of the company, the way in which a company

conducted its affairs, paid dividends, made annual reports,

and so on. The ascertainment of what advices were given or

not given to directors, managers and others, and the way in

which an auditor went about his task and the reason for

doing so may be the key to understanding the manner of its

(the company's) trading, its dealings and its business."

86. The documents in contention are all documents that were in use by Duesburys during periods of Qintex audits; some were created in the course of those audits and record work done therein. They are relevant to showing how the audits should have been structured and carried out, to whether the audits were in fact so structured and, also relevant to finding out (irrespective of how the audits ought to have been structured) how the audits were in fact conducted. Such documents may well throw light on whether and, if so, why the books contain inaccuracies and how this situation could have continued over a lengthy period and yet escape detection. All these matters are live issues in the investigation. They are covered precisely by the description in Cousins v Corporate Affairs Commission of those aspects of an auditor's activities which can be said to comprise the affairs of the company audited. A fortiori, the documents sought also relate to the affairs of the members of the Qintex Group.

87. It is true that the documents here in contention relate to the way Duesburys conducts its own business. But that does not necessarily preclude them from also relating to the affairs of the companies in the Qintex Group. It is clear that these documents are Duesburys' own property. But that does not justify non-compliance with a notice requiring production of documents which also answer the description of documents relating to the affairs of another.

88. In deciding that I should order production of the documents in question, I record that I have placed reliance upon the statement by the Commission that there is no suggestion that anyone in Duesburys is suspected of involvement in any contravention.