Visnic v Australian Securities and Investments Commission [2006] FCA 1204

FEDERAL COURT OF AUSTRALIA

Visnic v Australian Securities and Investments Commission [2006] FCA 1204

Albarran v The Members of the Companies Auditors and Liquidators Disciplinary Board (2006) 24 ACLC 619 MILAN VISNIC v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION NSD 692 OF 2006

CONTI J

4 SEPTEMBER 2006

SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 692 OF 2006

BETWEEN: MILAN VISNIC

Applicant

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

JUDGE: CONTI J

DATE OF ORDER: 28 August 2006

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Subject to the direction of the Chief Justice, pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth) that the original jurisdiction be exercised by a Full Court. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 692 OF 2006

BETWEEN: MILAN VISNIC

Applicant

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

JUDGE: CONTI J

DATE: 4 september 2006

PLACE: SYDNEY

Reasons for Referral to Full Federal Court 1 This is an application by the applicant (Mr Visnic) for a direction by the Chief Justice that the issues arising in the proceedings be determined by a Full Federal Court pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth). The respondent Australian Securities and Investments Commission ('ASIC') did not oppose the application. 2 The proceedings were originally commenced in the High Court of Australia on 3 February 2006, whereby the claim and relief sought were framed as follows: '1. A constitutional challenge to the validity of s 206F of the Corporations Act 2001 (Cth). This proceeding is brought in the original jurisdiction of the Court. 2. A declaration that s 206F of the Corporations Act 2001 (Cth) is ultra vires the legislative power of the Parliament of the Commonwealth to the extent that it invests the judicial power of the Commonwealth in an administrative body contrary to the separation of judicial, executive and legislative power entrenched in the Constitution. 3. A declaration that s 206F of the Corporations Act 2001 (Cth) is null and void and of no legal effect because it purports to invest the judicial power of the Commonwealth in an administrative body contrary to the separation of judicial, executive and legislative power entrenched in the Constitution. 4. A declaration that the decision by ASIC on the 24th January 2006 to disqualify the Plaintiff from managing a corporation for a period of five years is null and void and of no legal effect.' 3 Subsequent to the filing of a Statement of Claim in the High Court on 1 March 2006, the proceedings were remitted by order of the High Court made on 27 March 2006 to the Federal Court. 4 That Statement of Claim had pleaded the following circumstances: (i) Mr Visnic was a director of 13 companies now in liquidation; subsequently a fourteenth company was added to that list; (ii) each of those companies has been placed in liquidation under the Corporations Act 2001 (Cth) ('the Corporations Act'); (iii) the liquidator has reported pursuant to s 533(1)(c) and (d) of the Corporations Actthat each of them may be unable to pay its unsecured creditors more than fifty cents (50c) in the dollar; (iv) thereafter on 4 November 2005, ASIC served upon Mr Visnic a 'Notice to Demonstrate Why Disqualification Should Not Occur', that notice bearing the date 26 October 2006; the notice offered Mr Visnic the opportunity to be heard by either making written submissions and/or appearing at a hearing in respect of his obligation to demonstrate to ASIC why he should not be disqualified from managing corporations for a period of up to five years; (v) by letter dated 12 January 2006, Mr Visnic's solicitor notified ASIC that he would commence in the original jurisdiction of the High Court a constitutional challenge to the validity of s 206F of the Corporations Act; (vi) by letter dated 17 January 2006, ASIC asserted the validity of s 206F, but Mr Visnic declined to attend any hearing arranged by ASIC; (vii) on 24 January 2006 a delegate of ASIC served on Mr Visnic a 'Notice of Disqualification from Managing Corporations', accompanied by a 'Statement of Facts, Findings and Reasons for Decision'; that Notice stated, inter alia, 'you are disqualified from the time of service of this notice for a period of five (5) years from managing corporations without the leave of ASIC'; (viii) section 206F empowers ASIC to adjudicate upon a dispute concerning rights and obligations arising from the operation of the Corporations Act upon past events or conduct concerning the applicant and imposes a civil penalty, and so much would constitute an exercise of judicial power; (ix) consequently s 206F empowered ASIC to adjudicate to finality a discrete controversy, being Mr Visnic's past conduct with respect to managing corporations, and that controversy 'was an exercise of judicial power'; (x) by reason of the foregoing, s 206F confers upon ASIC the judicial power of the Commonwealth, so much being 'constitutionally impermissible because [ASIC] is not a Court within the meaning of Chapter III of the Constitution [of the Commonwealth of Australia]'. Essentially declaratory relief was formally sought by Mr Visnic accordingly. 5 Subsequently on 8 June 2006, Mr Visnic filed in the Federal Court 'Plaintiff's Draft of Constitutional Facts', to which was attached the following documents, being 'Notice to demonstrate why the disqualification should not occur under section 206F of the Corporations Act 2001', to which was attached a 19 page document headed 'Areas of Concern' relating to each of the relevant companies, a four page document headed 'List of documents upon which concerns are based' also relating to each of the companies, a three page ASIC format headed 'Administrative hearings', a Form 587 addressed to Mr Visnic bearing date 24 January 2006 and a 13 page document of the same date signed by a delegate of ASIC and headed 'Decision'. 6 The above Decision instrument of 24 January 2006 signed by the delegate of ASIC contained the following segments: (i) introduction; (ii) background; (iii) contentions by Van Houten Solicitors (for Mr Visnic); (iv) materials on which findings were made; (v) issues raised for determination; (vi) Issue 1 – Reports about corporations' inability to pay debts; (vii) Issue 2 – Related Corporations; (viii) Issue 3 – Conduct regarding management, business or property of a corporation, divided into the following segments: Uncommercial transactions Inter-Company Balances Solvency Other Appropriate Matters Financial Records Reports as to Affairs Public Interest Conclusions; (ix) Decision. 7 Subsequently ASIC filed on 29 June 2006 a six page document headed 'Respondent's Draft Statement Of Agreed Facts' setting out the historical events and actions I have already detailed above, and on 13 July 2006 ASIC's solicitor filed a document headed 'Statement of Agreed Facts', which recorded what I have already summarised above in terms of steps taken of a procedural nature and attached documentation which had been attached to the documents I have already detailed. 8 In support of the application for referral of the proceedings to a Full Court, Counsel for Mr Visnic provided to the Court on 7 August 2006 an outline of written contentions for referral to the proceedings to a Full Court in its original jurisdiction, which may be summarised as follows: (i) Section 206F, which appears in the context of sections 206D and 206E of the Corporations Act, provides a punitive power; (ii) the exercise of that punitive power involves disqualification from managing or controlling corporate governance, and being therefore a punitive power 'and as such the true character of the power is a judicial power [which] can only be vested in a Court' (to cite the text of Mr Visnic's 'amended brief outline of contention'); (iii) section 206F is 'under s 15 of the Acts Interpretation Act 1901 (Cth) invalid to the extent of a matter falling within the power vested in the Federal Court in respect of s 206D and s 206E of the Corporations Act 2001' (to further cite the text of Mr Visnic's' amended brief outline of contention'); (iv) the decision of a Full Federal Court in Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board (2006) 24 ACLC 619 made on 19 May 2006, which considered the constitutional validity of s 1292 of the Corporations Actin the light of the power thereby afforded to that Board, involved what were described by Mr Visnic as 'significant differences between the statutory regime concerning the power given by the Act to the Board and the power given by the Act to [ASIC] in s 206F'; (v) in particular it was said by Mr Visnic that s 1292 has 'a narrow fixed set of statutory criteria for disqualification, being in effect a licensing scheme, whereas s 206F(2)(iii) afforded ASIC carte blanche to exercise its jurisdiction wholly on a punitive basis having regard to [Mr Visnic's] past conduct'; (vi) the 'unencumbered punitive exercise of power to finality in respect of discrete controversies based on past conduct is… an exercise of judicial power', and 'section 533 of the Corporations Act triggers the power in s 206F by a finding that the applicant may have committed a Commonwealth offence'. 9 On the occasion of the final hearing of Mr Visnic's application, Mr Visnic added the following further submission: '1C. Further, the applicant submits that the matter involving an allegation by ASIC of contraventions capable of falling within s 206D and s 206E of the Corporations Act 2001 being vested in the Federal Court of Australia and in respect of which the respondent is the Commonwealth within the meaning of s 64 of the Judiciary Act 1903 and s 75(3) of the Constitution, whereby s 206F is under s 15 of the Acts Interpretation Act 1901 invalid to the extent of a matter falling within the power vested in the Federal Court of Australia in respect of s 206D and s 206E of the Corporations Act 2001.' 10 It was further contended that a reference to a Full Court would minimise Mr Visnic's legal costs, were there to be an appeal by either party against the decision of a single justice to the Full Court, and from his perspective, an appeal would be inevitable were he not to succeed at first instance. Counsel for Mr Visnic submitted that conversely it would be likely that ASIC would appeal, though understandably no commitment was proffered by ASIC to the Court in that regard. At the present time Mr Visnic remains of course relevantly disqualified. 11 My recommendation as docket judge is that the present application, at the instance of the applicant, be referred to a Full Court in the first instance for resolution of the issues of law prospectively arising. I conditionally made an order to that effect, together with other procedural orders. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.