Gordon v Australian Securities & Investments Commission [2002] FCA 1155

FEDERAL COURT OF AUSTRALIA

Gordon v Australian Securities & Investments Commission [2002] FCA 1155 ROGER CHARLES GORDON & COLIN DOUGLAS TURNER v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION S.3010 of 2002 MANSFIELD J 17 SEPTEMBER 2002 ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S.3010 OF 2002

BETWEEN: ROGER CHARLES GORDON

FIRST APPLICANT

COLIN DOUGLAS TURNER

SECOND APPLICANT

AND: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

RESPONDENT

JUDGE: MANSFIELD J

DATE: 17 SEPTEMBER 2002

PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 This is an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act). The applicants seek to review a decision of the respondent Australian Securities & Investments Commission (ASIC) which it is claimed to have made on 5 August 2002 that a nominated delegate (the delegate) would convene separate hearings under s 837 of the Corporations Act 2001 (Cth) (the Act) on designated dates to determine whether banning orders should be made with respect to each of the applicants. It is alleged that the delegate engaged in conduct which gives rise to a reasonable apprehension of bias that she will not be able to fairly preside over the proposed hearings so as to enliven the ground of review available under s 5(1)(a) and s 6(1)(a) of the ADJR Act.

BACKGROUND 2 The delegate is a delegate of ASIC for the purpose of making decisions under the Act and for the purpose of conducting hearings under s 51 of the Australian Securities & Investments Commission Act 2001 (Cth) (the ASIC Act). 3 On about 27 May 2001, the delegate was allocated a brief dated 13 May 2002 to consider whether a banning order pursuant to s 830 of the Act should be made against the second applicant. The delegate, having considered the brief, on 6 June 2002 issued a notice of hearing to the second applicant under s 837 of the Act. Section 837 relevantly provides: "(1) The ASIC must not: (a) … … (e) make, otherwise than by virtue of paragraph 828(a) or (d) or 829(a), (b) or (c) an order under section 830 against a person; … unless ASIC complies with subsection (2) of this section. (2) ASIC must give the applicant, licensee or person, as the case may be, an opportunity: (a) to appear at a hearing before ASIC that takes place in private; and (b) to make submissions and give evidence to ASIC in relation to the matter." 4 The delegate's letter to the second applicant dated 6 June 2002 identified the matter of the proposed hearing as follows: "The Australian Securities and Investments Commission (ASIC) is concerned that: · you may have contravened a securities law (para. 829(d) of the Corporations Act ('the Act'); · it may have reason to believe that you will not, perform efficiently honestly and fairly the duties of a representative of a dealer or an investment adviser (para. 829(g) of the Act). I am a delegate of ASIC and have been appointed to decide what, if any, action should be taken against you arising out of those concerns. The purpose of this notice is to inform you of ASIC's concerns and to offer you the opportunity of a hearing under section 837 of the Act before I make my decision." It then explained that s 837 required ASIC to give the second applicant an opportunity to be heard before deciding whether to make a banning order under s 830 of the Act, and the nature of a banning order. By attachments, it identified the concerns which ASIC had about the second applicant's conduct, and the information upon which those concerns were based. It briefly described the hearing procedures. It nominated a time and place for the hearing, although those arrangements have been put in abeyance pending resolution of the present application. It provided the second applicant with the opportunity to make submissions and to give evidence to ASIC, in addition to providing the opportunity to appear at the proposed hearing. 5 The attachment separately identified the conduct upon which ASIC was concerned that the second applicant may have contravened s 829(d) of the Act. There were two issues. The first was that, between about April 2001 and January 2002 the second applicant may have contravened s 726 of the Act by offering, or by being knowingly concerned in the offering of, securities of a managed investment scheme that would need to be registered and had not been registered, and that the offer would need disclosure to investors under Part 6D.2 if the scheme had been registered. Detailed particulars of that first matter of concern were provided, relating to a scheme called the "BFS Franchise Recovery Package" which ASIC described as a managed investment scheme. The second matter of concern was that, between about April 2001 and January 2002 the second applicant may have contravened s 995(2) of the Act by engaging in conduct which was misleading or deceptive or was likely to mislead or deceive. Again detailed particulars of that concern were provided. It is not necessary to set out those particulars in detail. 6 There were six topics of conduct of the second applicant which ASIC identified as being conduct upon which it may have reason to believe that the second applicant will not perform efficiently honestly and fairly the duties of a representative of a dealer or an investment adviser contrary to s 829(g) of the Act. Firstly, it was said that the second applicant may have accepted money from investors to participate in the BFS Franchise Recovery Package prior to the structure of the managed investment scheme being finalised. Secondly, it was said that the second applicant appeared to have treated money paid by investors to participate in the BFS Franchise Recovery Package as his own. Thirdly, it was said that the second applicant may have failed to make any or adequate inquiries about the BFS Franchise or the product comprising the franchise. Fourthly, it notified its concern that the second applicant's personal goals "in the matter of the recovery package appear to have interfered with" his objectivity and influenced his personal recommendations and behaviour in relation to the investment. Fifthly, it was raised that the second applicant's expressed intentions in acquiring a financial services business may give rise to concerns about the honesty, efficiency and fairness of his proposed conduct in relation to the conduct of a financial services business. Finally, it was raised that the second applicant may have promoted the BFS Franchise Recovery Package and solicited funds for that managed investment scheme when he did not understand the nature of the scheme or before the true structure of the managed investment scheme had been finalised. Particulars of each of those allegations were provided. The final issue under that heading was expressed in the following terms: "By reason of the matters referred to in Grounds 1 to 8 above, it would appear that you do not understand the obligations of a representative of a dealer or of an investment adviser, and/or are not able to properly discharge the duties of a representative of a dealer or of an investment adviser, and/or cannot be relied on to properly discharge those duties." 7 On about 2 June 2002, again in her capacity as a hearings delegate, the delegate was allocated a brief also dated 13 May 2002 to consider whether a banning order under s 830 of the Act should be made against the first applicant. Having considered that brief, the delegate on 24 June 2002 issued a notice of hearing to the first applicant under s 837 of the Act. It was in terms similar to that given to the second applicant. In addition to the two particular concerns identified to the second applicant, a third concern was identified, namely that ASIC was concerned that it may have reason to believe that the first applicant had not performed efficiently honestly and fairly the duties of a representative of a dealer contrary to s 829(f) of the Act. However, the breadth of the matters of concern was more widely expressed. It was as follows: "As a delegate of ASIC, I am concerned that as a result of your conduct: (1) between about mid April 1997 and 30 June 1998 whilst you were a proper authority holder of Greater Western Financial Services Co Pty Ltd ("Greater Western"), in relation to an investment stated to be a joint venture between the investor and Infomercial Management Group Pty Ltd ("IMG") and described in an explanatory memorandum relating to the investment as an "Infomercial/Product Distribution Investment" ("Infomercial"); (2) in the financial year ending June 1999 whilst you were a proper authority holder of Greater Western, in relation to an investment stated to be a joint venture between the investor and IP Product Management Group Pty Ltd ("IPPMG") and described in an explanatory memorandum relating to the investment as a "Theme Based Music Collaborations Product Distribution Investment" ("Music"); and (3) between about September 2001 and January 2002 in relation to an investment described as the BFS Franchise Recovery Package: · you may have contravened a securities law; · ASIC may have reason to believe that you have not performed efficiently, honestly and fairly, duties of a representative of a dealer; and · ASIC may have reason to believe that you will not perform efficiently, honestly and fairly, the duties of a representative of a dealer or of an investment adviser." Separately then the attachment provided details of each issue of concern and particulars of the material upon which each issue of concern was based. 8 Then, on 24 June 2002, again in her capacity as a hearings delegate, the delegate was allocated a brief dated 29 May 2002 to consider whether the licence of Greater Western Financial Services Co Pty Ltd (GWFS) should be revoked or suspended under s 826 or 827 of the Act. Section 837(1) of the Act also directed ASIC not to make any such order without having complied with s 837(2) of the Act. The delegate on 3 July 2002, having considered the brief, issued a notice of hearing to GWFS pursuant to s 837 of the Act. The areas of concern which were the subject of that notice were identified in the following terms: "As a delegate of the Australian Securities and Investments Commission ("ASIC"), I am concerned in relation to Greater Western Financial Services Co Pty Ltd ("Greater Western"), the holder of a dealers licence, that: · between about mid April 1997 and 30 June 1999 in connection with an investment stated to be a joint venture between the investor and the Project Manager and described in an explanatory memorandum relating to the investment as an "Infomercial/Product Distribution Investment" ("Infomercial") or a "Theme Based Music Collaborations Product Distribution Investment" ("Music"), Greater Western may have contravened a securities law; · ASIC may have reason to believe that Greater Western has not performed efficiently, honestly and fairly the duties of a holder of a dealers licence; · ASIC may have reason to believe that Greater Western will not perform efficiently, honestly and fairly the duties of a holder of a dealers licence: · an order has been made under section 830 against Mr Kim Sing Koo, ("Mr Koo") then a director of Greater Western; and · the educational qualifications and experience of Greater Western's directors Colin Douglas Turner ("Mr Turner") and Roger Charles Gordon ("Mr Gordon"), who were not directors when Greater Western's licence was granted, are inadequate having regard to the duties that they will perform in connection with the holding of the licence." 9 The applicants were each appointed directors of GWFS on 8 April 2002 and are its only directors and shareholders. 10 The applicants had previously been examined and provided assistance to ASIC in connection with an investigation under s 19(2) of the ASIC Act in March 2002. The notices given under s 19 of the ASIC Act to each of the applicants indicated that the examinations then conducted were in relation to an investigation into a suspected contravention by Waldorf Fiducial Marketing Pty Ltd (Waldorf), and each of the applicants, of ss 995, 999 and 1000 of the Act in the period from 1 April 2001 to 4 March 2002. Subsequent to those examinations, solicitors for the applicants conferred with ASIC about its concerns, with a view in part to determine whether those concerns might be resolved without formal action on ASIC's part. It is not necessary to set out in detail the course of the discussions. They did not result in resolution of ASIC's concerns by any consensual action. 11 Following (but not necessarily as a result of) representations made by solicitors for the applicants in July 2002, the chief delegate of ASIC in South Australia was assigned to conduct the hearing of which notice had been given to GWFS. 12 I accept that the delegate accurately described her state of mind as follows: "I was of the view that the material before me might warrant the making of a banning order if, after a hearing, the cogency of that material was undiminished and it appeared to be in the public interest to make such an order. It was for this reason that I issued the Notices of Hearing. I have not reached any decision as to whether or not a banning order should be against Mr Turner or Mr Gordon and will not do so until after I have considered the evidence given and submissions made on behalf of Mr Turner and Mr Gordon at the respective hearing." 13 Counsel for the applicants accepted that evidence, and did not contend that in fact the delegate would approach the hearings with other than an open mind.