Legal database - View: Cases: Australian Securities Commission v Deloitte Touche Tohmatsu

Australian Securities Commission v Deloitte Touche Tohmatsu
(1996) 70 FCR 93
136 ALR 453

(Judgment by: Beaumont, Drummond, Sundberg JJ)

Australian Securities Commission v
Deloitte Touche Tohmatsu (formerly known as Deloitte Haskins & Sells & Deloitte Ross Tohmatsu)

Court:

Federal Court of Australia

Judges:
Beaumont
Drummond
Sundberg JJ

Subject References:
Administrative Law
judicial review of decision by the Australian Securities Commission to cause proceedings against former directors and auditors to be taken in the name of the company under s.50 of the Australian Securities Commission Act 1989
matters relevant to the exercise of discretion in the public interest to commence proceedings
rule in Foss v Harbottle
whether policy of the common law that the directors (alone) of a wronged company should determine whether to commence proceedings in the company's name a relevant consideration
whether failure to take such a consideration into account vitiates ASC's decision to litigate
opposition of current directors to commencement of proceedings against former directors
no evidence of opposition to commencement of proceedings against former auditors
nothing in language of provision indicating requirement for importation of Foss v Harbottle consideration
whether correspondence exchanged after decision was made relevant
whether possibility of proceedings resulting in double benefit to shareholders a relevant consideration
whether impact of litigation upon current partnership of auditors not involved in impugned audit a relevant consideration
discretion of ASC essentially unconfined
Corporations
actions by and against corporations
decision by the Australian Securities Commission to cause proceedings to be begun and carried on in the name of a company under s.50 of the Australian Securities Commission Act 1989
rule in Foss v Harbottle
policy of the common law that the directors (alone) of a wronged company should determine whether to commence proceedings in the company's name
whether Foss v Harbottle consideration a relevant consideration under s.50 of the Act
where it appears to [the ASC]
intention to confer an extremely wide discretion
obligation only to take honest...view of the facts or law which could reasonably be entertained
the public interest
considerations not closely confined
evaluation of the public interest a question essentially one of fact and degree... not easily susceptible to judicial review
technical approach to statutory construction to be eschewed

Legislative References:
Australian Securities Commission Act 1989 - 50
Administrative Decisions (Judicial Review) Act 1977 - the Act

Case References:
Minister for Aboriginal Affairs v Peko-Wallsend Ltd - (1986) 162 CLR 24
Somerville v Australian Securities Commission - (1995) 60 FCR 319
Neate v Australian Securities Commission - (1995) 60 FCR 518
Minister for Aboriginal Affairs v Peko-Wallsend Ltd - (1986) 162 CLR 24
Re Excel Finance Corporation Ltd; Worthley v England - (1994) 52 FCR 69
Robinson v Sunderland Corporation - [1899] 1 QB 751
Smith v Browne - [1974] VR 842
Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No. 2) - [1972] 2 QB 455
O'Sullivan v Farrer - (1989) 168 CLR 210
Re Queensland Electricity Commission; Ex parte Electrical Trades Union of Australia - (1987) 72 ALR 1
Right to Life Association (NSW) I v Secretary, Department of Human Services and Health - (1995) 128 ALR 238

Hearing date: 17 July 1996
Judgment date: 28 August 1996

Sydney

Judgment by:
Beaumont
Drummond
Sundberg JJ

INTRODUCTION

Section 50 of the Australian Securities Commission Act 1989 ("the ASC Act") empowers the appellant, the Australian Securities Commission (the "ASC"), in the particular circumstances there described, to begin, and carry on, certain proceedings in the name of a company. This case, which arises out of the collapse of the Adsteam group of companies in 1990, raises several novel but important questions about the meaning and operation of s.50.

The appeal before the Court is from an order of a Judge of the Court (Lindgren J.) made on 4 April 1996 in an application made by the respondent ("DTT") against the ASC, for an order of judicial review under the provisions of the Administrative Decisions (Judicial Review) Act 1977 ("the AD (JR) Act"). DTT sought, and Lindgren J. granted, an order of judicial review of a decision of the ASC to commence proceedings against DTT in the name of Adsteam. The order set aside a decision of the ASC made on 29 March 1994 ("the ASC decision") under s.50 so far as the decision affected DTT.

Section 50 is, relevantly, in these terms:

"50.

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

(a): the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or
(b): recovery of property of the person; the [ASC]:
(c): if the person is a company - may cause; or
(d): otherwise - may, with the person's written consent, cause;

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

Under the ASC decision, the ASC effectively resolved, pursuant to s.50, to cause proceedings to be begun and carried on in the name of The Adelaide Steamship Company Limited ("Adsteam") against DTT, Adsteam's auditors at material times, for the recovery of damages and ancillary relief in respect of matters said to arise out of the group's 1990 accounts and the payment of dividends by Adsteam for the 1990 year.

His Honour held that the ASC decision was vitiated by the failure of the ASC properly to take into account a consideration which he described as the "Foss v Harbottle consideration" (a term to be further explained below) which, his Honour held, the ASC was, on the proper interpretation of s.50, bound to take into account.

THE BACKGROUND IN OUTLINE

The background to the making of the ASC resolution, which is substantially as described by Lindgren J. in an earlier judgment (reported at (1994) 54 FCR 284 at 288-9) is, in outline, as follows:

(a) The ASC investigation and the preparation of the "Submission paper"

Division 1 of Part 3 of the ASC Act makes provision, in ss.13, 16, 17 and 18, with respect to an investigation into the management of the affairs of a body corporate, and into other matters. It will be necessary to describe these provisions in more detail later in these reasons.

On 29 September 1992, the ASC decided, under Div. 1, to make an investigation into the affairs of Adsteam and its subsidiaries in relation to the year ended 30 June 1990. The investigation was, in essence, into the question whether Adsteam's directors should have identified certain loans to subsidiaries as being bad or doubtful, and thus made adequate provision against them.

Some 18 months after the commencement of the statutory investigation, at a meeting of the ASC held on 29 March 1994, a "Submission paper" prepared by ASC staff was considered. According to the Submission paper, the 1990 accounts of Adsteam disclosed a profit of $236 million when, in fact, Adsteam had incorrectly and inappropriately treated various items and inter-company transactions; a correct treatment would have resulted in a declared loss of $224 million. On that basis, the paper stated, there would have been no profit available for payment of a dividend, and no dividend could have been declared and paid, thus contravening s.565 of the Companies (South Australia) Code and Article 113 of Adsteam's articles of association; Adsteam's directors and auditors had thus, it was said, been negligent.

The paper went on to observe that the 1990 accounts purported to show an operating profit after income tax of $217 million and retained profits at the beginning of the year of $243 million, with a resultant sum of $460 million available for appropriation to dividend; that all members of Adsteam's board and its auditors, DTT, were aware of the acts and omissions giving rise to the overstatement of Adsteam's profit by at least $539 million, in consequence of which Adsteam's assets were "grossly overvalued". Reference was made to an internal Adsteam valuation prepared in about August 1990 asserting a net value of Adsteam as $1.815 billion, in contrast to an external valuation as at December 1990 of between nil and $97 million.

The paper sought to identify (para.27.2) breaches of the Corporations Law by the auditors, being "breach of retainer", "negligence", "negligent misstatement", "breach of statutory duty" and "being knowingly concerned in breaches by the directors".

In paras. 49 and 50, under the heading "The provisions of section 50" the paper recommended that proceedings be begun and carried on under s.50. The paper dealt (paras.51 and 52) with "the public interest" aspect of s.50 and referred, for example (para.52.4) to the payment of a dividend of $228 million by an "ailing public company...[which] was not generating enough income to meet its operational needs" as "serious, negligent and irresponsible conduct on behalf of the directors and on behalf of [DTT] who condoned such conduct". In para.52.6 of the paper it was stated:

"...the conduct in question amounts to a gross breach of accounting rules. It contravenes fundamental principles of company law and management. It goes to the heart of audit practice. Adsteam was a substantial Australian public corporation;"

Paragraph 52 is important for present purposes and will be set out fully below.

Paragraph 68 of the paper acknowledged that the cost of such major litigation, which would be met by the ASC, was "significant" but stated that it was "commensurate with the seriousness of the conduct identified".

(b) The terms of the ASC decision

The resolution making the ASC decision was in these terms:

"The Commission, having regard to the debate:

As a result of the investigation into the affairs of The Adelaide Steamship Company Limited (Adsteam) and its subsidiaries and upon consideration of and taking into account the matters set out in the Submission paper, the Commission has formed the opinion that it appears to the Commission to be in the public interest for Adsteam to commence civil proceedings, pursuant to section 50 of the ASC Law, against the former directors of Adsteam, namely Messrs Spalvins, Kent, Branford, Russell and Gregg (the former directors) and the Auditor, Deloitte Ross Tohmatsu, formerly Deloitte Haskins & Sells (Deloittes) for the 1990 financial year for the recovery of damages and ancillary relief in respect of the matters arising out of the 1990 accounts and payment of dividends by Adsteam for the 1990 year.

RESOLVED that the Commission cause such proceedings to be begun and carried on in the name of Adsteam."

(c) The "public interest" considerations stated by the ASC in making its decision

The resolution of the ASC went on to state the following with respect to the "public interest" considerations arising in connection with its decision to proceed under s.50:

"Matters relevant to the public interest include:

1.: The investigation by the Commission into the affairs of Adsteam and its subsidiaries shows the 1990 financial year accounts disclosed profits of $236 million when on the information Adsteam had incorrectly and inappropriately treated various items and inter- company transactions. Correct treatment of these items in the accounts would have resulted in a declared loss of $244 [sic] million. The 1990 accounts were certified by Deloittes and the former directors of Adsteam as true and fair. Based on the 1990 accounts the former directors declared and paid a final dividend of 25 cents per share. The interim dividend and the final dividend totalled $228 million. Further, the alleged conduct as identified through the investigation disclosed gross negligence and a significant breach of accounting standards.
2.: The proposed proceedings are to recover damages for negligence, default, breach of duty or other misconduct, committed by the former directors of Adsteam and for negligence, default and breach of duty by Deloittes in connection with the adoption of and failure to qualify misleading and incorrect accounts for the 1990 financial year and the payment of dividend other than out of profit.
3.: Adsteam has since December 1990 been under a bank workout. There is no indication from the present directors of Adsteam that they propose to commence civil proceedings.
4.: The Commission, in commencing this action, would be taking action in support of the objectives outlined in section 1(2)(a), (b), (d) and (g) of the Australian Securities Commission Act 1989. The Corporations Law gives the Commission a significant role in the regulation of directors' duties, accounting obligations and auditors' duties.
5.: If the Commission commences proceedings against the former directors of Adsteam and Deloittes it would have a strong regulatory effect of clarification of accounting standards in relation to the presentation of consolidated accounts of public company groups.
6.: The proposed proceedings would demonstrate to directors and auditors the duty of care imposed upon them in relation to the adoption of accounts.
7.: Matters outlined in the Submission paper, in particular in paragraph 52."

Some of para.52 has already been mentioned; its full text is as follows:

"52.

Matters which have been identified in support of the public interest in the proceedings include:

52.1: the strong regulatory purpose in the clarification of the application of accounting standards in relation to the presentation of consolidated accounts of public company groups;
52.2: the need to address creative group accounting practices to create profits and disguise losses upon consolidation, transactions within a group, recovery of receivables within a group and the application of accounting standards to these issues;
52.3: the use of reserves, asset valuations and carrying values which would also be addressed in the course of proceedings;
52.4: the issue of improper payments of cash from an ailing public company. When Adsteam was not generating enough income to meet its operational needs, it paid out, as dividend, cash and shares totalling $228 million. This is serious, negligent and irresponsible conduct on behalf of the directors and on behalf of Deloittes who condoned such conduct;
52.5: the payment of a dividend out of other than profits. `It is a fundamental principle of company law that the whole of the subscribed capital of a company with limited liability, unless diminished by expenditure on the company's objects...shall remain available for discharge of its liabilities' per Kitto J in David Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1958) 100 CLR 392 @ 413;
52.6: the conduct in question amounts to a gross breach of accounting rules. It contravenes fundamental principles of company law and management. It goes to the heart of audit practice. Adsteam was a substantial Australian public corporation;
52.7: there must be integrity of information published on behalf of a publicly listed company. The market is informed by and acts in response to information published. In order to ensure maximum credibility of Australian corporations and securities markets the ASC must pursue accurate reporting. There is a clear public interest in proceedings which encourage full and fair and reliable reporting process on the part of those involved in the presentation of company accounts;
52.8: Given the nature of the action, the proper plaintiff is the company itself. Absent any proceedings by the company itself, the shareholders and creditors may be without remedy.
52.9: Adsteam has been in a bank workout position since December 1990. It is one of the incidents of this mode of workout that there is no liquidator or other external administrator in place to examine and investigate the conduct of past board members as there would in a formal liquidation. In these circumstances it is all the more important that deleterious conduct identified and investigated by the Commission be pursued in the appropriate jurisdiction."

(d) The proceedings ("the principal proceedings") instituted in the Federal Court under s.50

On 20 April 1994, as a result of the ASC decision, the ASC filed an application in this Court in the name of Adsteam claiming relief against former directors ("the former directors") of Adsteam and against DTT ("the principal proceedings"). The application was stated to be brought in the name of Adsteam pursuant to s.50 of the ASC Act, as required by the Federal Court Rules, O.71, r.5(2).

As against some of the former directors, the following relief was claimed in the application: (1) an order that each of them pay to Adsteam the amount of the interim dividend and the final dividend paid out by Adsteam in relation to the financial year ended 30 June 1990, namely $228,801,000; (2) equitable damages for breach of fiduciary duty; (3) a declaration that each of them is indebted to Adsteam in an amount equal to the loss or damage caused to Adsteam as a result of any contravention of s.229 of the Companies (South Australia) Code ("the Code") jointly and severally pursuant to s.229(7) of the Code and an order that each of them pay the said debt; (4) a declaration pursuant to s. 229(7) of the Code that each of them is liable by way of a debt due to Adsteam to pay to Adsteam the amount of any profit resulting from any contravention by them of s.229 of the Code and an order that each of them pay to Adsteam an amount equal to that profit; (5) (in the case of some of the directors) damages for breach of contract.

As against DTT, the following relief was claimed: (1) damages for breach of the contract of retainer between Adsteam and DTT in respect of the audit of the accounts of Adsteam for the financial year ending 30 June 1990; (2) damages for negligent breach of duty; (3) damages for breach of statutory duty.

The principal proceedings have not been heard, having been adjourned from time to time pending the outcome of these AD(JR) Act proceedings. The former directors have not made any application for judicial review of the ASC decision. As has been noted, DTT sought, and was granted, judicial review of the ASC decision so far as it was resolved that the principal proceedings be brought against DTT.

THE LEGISLATIVE SCHEME

In order to understand the statutory context of s.50, reference should be made to other aspects of the relevant legislative scheme.

The performance by the ASC of its functions, and the exercise by the ASC of its powers, are dealt with by s.1(2) and (3) in Division 1 of Part 1 of the ASC Act, relevantly as follows:

"1(2)

In performing its functions and exercising its powers, the Commission must strive:

(a): to maintain, facilitate, and improve, the performance of companies, and of the securities markets 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; and

...

(d): to administer national scheme laws effectively but with a minimum of procedural requirements; and

...

(g): to take whatever action it can take, and is necessary, in order to enforce and give effect to national scheme laws.

(3)

This Act has effect, and is to be interpreted, accordingly."

Membership of the ASC is dealt with in s.9, in Part 2 of the ASC Act. By s.9(4) it is provided that the Minister shall nominate a person as a member only if the Minister is satisfied that the person is qualified for appointment by virtue of his or her knowledge of, or experience in, one or more of the following fields, namely, business, the administration of companies, the financial markets, law, economics and accounting.

Part 3 of the ASC Act (ss.13 to 93) confers upon the ASC extensive power dealing with investigations and information-gathering. Division 1 of Part 3 (ss.13-18) deals with investigations relevantly as follows:

Section 13(1) of the ASC Act provides that the ASC may make an investigation where it has reason to suspect a contravention of a law that: (i) concerns the management or affairs of a body corporate; or (ii) involves fraud or dishonesty and relates to a body corporate. Section 14 confers on the relevant Minister power to direct an investigation by the Commission into similar matters, as well as a range of other matters.

Section 16(1) provides that where, in the course of an investigation under Div.1, the ASC forms the opinion that a serious contravention of a law has been committed, it shall prepare an interim report that relates to the investigation and sets out certain matters.

Section 17(1) provides that at the end of an investigation under s.13, the ASC may prepare a report about the investigation and shall do so if the Minister so directs.

Section 18(1) provides that, as soon as practicable after preparing a report under Div.1, the ASC shall give a copy of the report to the Minister. Section 18(3) provides that where a report, or part of a report, relates to a person's affairs to a material extent, the ASC may, at the person's request, or of its own motion, give to the person a copy of the report, or part of it.

Division 5 of Part 3 (ss.49 and 50) deals with proceedings after an investigation. By s.49(1) it is provided that s.49 applies where, inter alia, as a result of an investigation conducted under Part 3 "it appears to the [ASC]" that a person "may have committed an offence against a national scheme law, or a relevant previous law, of this jurisdiction" and "ought to be prosecuted for the offence". By s.49(2) it is provided that the ASC may cause a prosecution of the person for the offence to be begun and carried on. The terms of s.50 have already been set out.

SOME FURTHER BACKGROUND

It is necessary to provide, as Lindgren J. did in another earlier judgment (reported at (1995) 54 FCR 562), some further detail of the background to this litigation in what follows.

(i) The terms of the ASC resolution for the statutory investigation in September 1992

Under the ASC resolution dated 28 September 1992, made pursuant to s.13 of the ASC Act, the ASC approved of the making of an investigation into the affairs of Adsteam and its subsidiaries, and in particular, into whether certain loans by Adsteam to subsidiary companies had been, and should have been recognised as being, bad or doubtful and provided for accordingly, in default of which provision Adsteam had falsely appeared to have profits and retained earnings entitling it to pay the dividend.

(ii) Adsteam's letter to the ASC dated 10 March 1994

Following a meeting held on 3 March 1994 between three of Adsteam's directors and representatives of the ASC, the chairman of Adsteam at that time wrote a letter to the ASC dated 10 March 1994. The letter is important for present purposes and should be set out in full:

"On 3 March Robert Wright, John Hartigan and I met with Nicholas Bampton, Consultant, Civil Litigation in the Commission's South Australian Regional Office, and yourself. The meeting was to discuss civil litigation which the ASC is considering bringing in Adsteam's name against former Directors of the company.

We understand one reason you wanted the meeting was to ask whether such proceedings would cause Adsteam problems from a commercial point of view. Having considered the matter, Adsteam's Directors believe that civil proceedings brought in effect by the ASC against former Directors of the company would cause considerable commercial inconvenience. Our reasons include:

•: Adsteam is continuing a programme of asset disposals. Adsteam and its associated companies have disposed of a large number of assets over the last few years - the most significant single disposal was the float of Woolworths Limited - and one possible transaction now under consideration would involve using the present Adsteam corporate structure. This particular proposal could not proceed if the company was party to litigation of the type we understand the ASC contemplates. Difficulties would be even greater if there were associated proceedings such as cross- claims.
•: The Pioneer Property group is an asset of Adsteam. This is a building and development company which trades in New South Wales, Victoria, Queensland and South Australia. Recent experience in a significant tender in Victoria was that Pioneer almost failed despite having the best tender because it was perceived to have `difficulties' flowing from its association with Adsteam. Only personal intervention by senior officers of Adsteam and representatives of its financiers secured the tender. If a similar situation was repeated with Adsteam involved in the contemplated litigation, in our view the business would be lost.
•: The events of default in Adsteam's refinancing arrangements include events related to action by the ASC, and actions against Directors. It is impossible to be precise until the ASC advises exactly what it has in mind, but there may be an event of default triggered either in the proceedings the ASC wants to initiate or in likely cross-claims.
•: Now that it has little other insurance business to offer, it is very difficult for Adsteam to obtain D & O cover. Our insurance brokers have already advised that the next renewal may be difficult to arrange. If Adsteam was involved in litigation of the type likely to require notification under D & O policies, there would almost certainly be no chance of renewal.
•: We believe that the market will not differentiate between the action against former Directors and action against present Directors - that is, the general reaction will simply be that the ASC is prosecuting Adsteam's Directors. Even if the ASC has simply begun a civil action against former Directors, these distinctions are likely to escape the market's attention. The press coverage of actions initiated by the ASC over two years ago shows the low level of understanding which can be expected.
•: The prices which Adsteam and its associates have been able to obtain for assets divested in recent years have depended in large part, in our view, on a perception of stability in management of the group. Before the group refinanced and stable management was put in place, offer prices for assets were very low. The market's perception that there is stable management ready to wait for commercially sensible offers has greatly helped the process of asset sales. The perception that the group is in trouble with the regulators, although a misconception, is likely to have a significant impact on continuing asset sales.

Up to a point these are preliminary reactions because ASC officers were not prepared at last Thursday's meeting to disclose to Adsteam the facts which the ASC investigation has apparently established. Adsteam is therefore unable to form its own view as to whether it is in the company's interest to bring civil proceedings. It is possible that the case against former Directors is strong enough to warrant civil proceedings by Adsteam itself - although this seems highly unlikely, given Adsteam's present position and the company's present interests, and given also that the ASC has apparently concluded that the evidence is not strong enough to initiate criminal proceedings.

Adsteam's view is that the decision whether or not civil action should begin in the company's name is a decision for Adsteam in the first instance, and a decision to be taken in the light of the company's interests (not the wider public interest, as you seem to suggest; on our advice it is in the public interest that proceedings should be commenced once it has been determined that it is in the company's interest to commence them).

Yours faithfully,

THE ADELAIDE STEAMSHIP CO LTD

[SGD] Peter Cottrell

P J W COTTRELL

Chairman"

(iii) ASC's reply dated 15 March 1994

The ASC replied by letter dated 15 March 1994 in these terms:

"Before your letter is considered by the Commission members, I invite you by close of business this Friday 18 March 1994 to:-

1.: with respect to the particular proposal referred to in the last paragraph on the first page, advise of the nature, timing, consideration and conditions of the transaction and why you assert that this proposal could not proceed if Adsteam was a party to the litigation of the type you understand the ASC contemplates; and
2.: with respect to the refinancing arrangements referred to in the second paragraph on the second page, provide copies of the relevant instruments pointing out such relevant events of default related to action by the ASC and actions against former directors. Further, I invite you to advise whether Adsteam's financiers have indicated that they may withdraw facilities in the event the ASC causes proceedings to be begun and, if so, Mr Procter and I will make ourselves available to discuss with representatives of Adsteam's banking syndicate any matters that may arise.

I look forward to receiving any response to this letter within the stipulated time."

(iv) ASC's further letter dated 22 March 1994

A further letter was written by the ASC to the directors of Adsteam dated 22 March 1994. It should also be fully set out:

"I refer to your letter dated 10 March 1994 addressed to Mr Procter and my letter to you dated 15 March 1994.

I note you have not responded to my letter.

All matters raised in your letter will now be put to the Commission members.

I am concerned with the suggestion in the first paragraph on page 3 of your letter that these are your preliminary reactions. You have been aware for some time now of the nature, extent and ramifications of the ASC's investigation into suspected breaches of the Companies Code concerning the management, the affairs and the accounts of Adsteam for the financial year ended 30 June 1990 of Adsteam (`the Adsteam Affairs'). This is evident by the fact that:-

1.

since April 1992 you have been providing the ASC with documents in relation to its investigation into the Adsteam Affairs by cooperative agreement;

2.

by notice served on Adsteam dated 5 November 1992 requiring the production of books, Adsteam was further advised of the ongoing investigation of suspected breaches of section 565 (no dividend payable except out of profits), 269(7)(c) (bad and doubtful debts), 269(8A) (directors to ensure accounting standards met), 269(9) (statements by directors about accounts - true and fair, in accordance with accounting standards), 269(10) (statements about group accounts (`the Suspected Breaches') concerning the Adsteam Affairs;

3.

since the notice dated 5 November 1992, further notices requiring the production of books have been served on Adsteam during 1993 with such notices reiterating that an investigation of the Suspected Breaches was being carried on into the Adsteam Affairs;

4.

during telephone conversations in March 1993 between Mr Fleming of the ASC and Adsteam's former company secretary, Mr MacDonald, Adsteam was advised that:-

4.1: the former directors, Messrs Spalvins, Kent, Branford, Gregg and Russell, the former employees Messrs. Thiele, McPeake, Pickford and the current employee Mr MacDonald were to be examined by the ASC;
4.2: the general structure of the examinations was an inquiry into the Suspected Breaches concerning the Adsteam Affairs and in particular section 565 (dividends paid out of profits);
4.3: in the event the ASC caused civil proceedings to be instituted, such proceedings would be against the abovenamed former directors seeking recovery of the profit paid out as dividends in suspected breach of section 565.

5.

at Adsteam's request, in March 1993 a pro- forma of the examination (section 19 ASC Law) notices to be served on the persons named in paragraph 4.1 was provided to Adsteam, which pro-forma on its face reiterated the fact of an investigation being carried on into the Suspected Breaches;

6.

In May 1993 Mr MacDonald had several telephone conversations with Mr Fleming where, in a particular conversation on 10 May 1993, Mr MacDonald was advised that:-

6.1: `the case' against the former directors was not a technical one but was an issue of whether approximately $470 million of `bad loans' and $80 million of interest reported as income ought to have been brought to account in 1990 thereby destroying any reported profit; and
6.2: Adsteam auditors for the 1990 accounts were `involved' in the investigation;

7.

communication between the ASC and Adsteam concerning the nature and status of the investigation was ongoing throughout May to October 1993 between Mr Fleming and MacDonald;

8.

on 7 December 1993 Messrs. Fleming, Procter and I met with your Messrs. Wright and MacDonald and advised, inter alia, that:-

8.1: the ASC's investigation was focussed on the parent company and in particular the 1990 financial reports and dividends paid in respect of that financial year;
8.2: the ASC may consider causing an action to be begun pursuant to its powers under section 50 of the ASC Law; and
8.3: any such action would be instituted in the name of Adsteam against Adsteam's former directors and auditors alleging that in breach of section 565 of the Companies Code dividends were paid out of other than profits during the financial year ended 30 June 1990 and seeking damages in the amount of the dividend paid plus interest;

9.

by letter dated 10 December 1993 you were advised that the ASC was contacting Mr Lonergan on the question whether it would have been appropriate for the directors' and auditors' of Adsteam to have made any adjustment to the reported profit or the asset revaluation reserves or other reserves in respect of the financial year ended 30 June 1990; and

10.

at the meeting of 3 March 1994, Mr Procter and I again confirmed the matters set out in paragraph 8 to your Messrs. Cottrell, Wright and Hartigan.

Finally, I note the matters raised in the last paragraph of your letter and advise that your view will be brought to the attention of the Commission members. The members will make any decision having regard to section 50 of the ASC Law in its terms."

THE THREE EARLIER JUDGMENTS OF LINDGREN J. IN THIS MATTER

In order to understand how this matter evolved, and the context of the judgment given by Lindgren J. on 4 April 1996 now under appeal, it will be necessary to refer to the three earlier judgments of his Honour dealing with both substantive and interlocutory adjectival aspects of the AD(JR) Act application. His Honour said that the reasoning in the earlier judgments, especially the second, should be regarded as picked up in his fourth judgment given on 4 April 1996.

(a) The first judgment (21 October 1994 - reported at (1994) 54 FCR 284)

Lindgren J. here refused an application by DTT to amend its application for an order of review on the ground that it would be futile to allow the amendment proposed because it was bound to fail. Under the amendment it sought, DTT proposed to contend that the ASC did not provide an interim report as required by s.16 of the ASC Act; and that the requirements of s.16 were, within the meaning of s.5(1) of the AD(JR) Act, "procedures that were required by law to be observed in connection with the making of a decision" under s.50.

Lindgren J. said (at 291):

"[The] question is whether ss 16 and 18 stipulate `procedures that were required by law to be observed in connection with the making of the' decision under s 50. In my opinion they do not.

Section 50 does not, expressly or by implication, refer to a report, whether interim or final, provided for in ss 16 and 17 respectively. The omission appears to be deliberate. The opening words of s 50 are `Where, as a result of an investigation or from a record of an examination ...'. This draws a distinction between an investigation and the record of an examination. Moreover, the opening words of the predecessor of s 50, namely s 306(11) of the Companies Code, were `If, from a report under this Part, or from the record of an examination under this Part ...' (emphasis supplied). The reference in s 306(11) is to Pt VII, of the Code. Interim and final reports by inspectors on their investigations were provided for in s 305 within Pt VII. Accordingly there is a contrast between the reference to an investigation in s 50 and the reference to a report on an investigation referred to in its predecessor.

Sections 16 and 18 have a different focus from that of s 50. Sections 16 and 18 are concerned, relevantly, to provide for what is to happen in any case where the ASC, in the course of an investigation, forms the opinion that a serious contravention of any law of the Commonwealth, a State or a Territory has been committed."

His Honour went on to say (at 291):

"[Sections 16 and 18] are directed to ensuring that discovered violations of legal rules and prohibitions are drawn to the attention of appropriate authorities... . Section 50, on the other hand, is concerned to empower the ASC to cause a person to litigate for certain civil remedies in any case where, as a result of an investigation, it appears to the ASC to be in the public interest for the person to do so.

The condition precedent to the ASC's obligation under s 16 to prepare an interim report is that it forms the opinion that a serious contravention `has been committed'. Other states of mind of the ASC are described in ss 49 and 50 as the `triggers' of its power to cause a prosecution to be begun and carried on (s 49) and to cause proceedings in a person's name to be begun and carried on (s 50)."

No challenge is now made to this judgment, and, with respect, we agree with it.

(b) The second judgment (16 January 1995 - reported at (1995) 54 FCR 562)

(i) The issue

Lindgren J. here upheld the ASC's objection to the competency of the AD(JR) Act proceedings in respect of the "decision" of the ASC then alleged by DTT, but indicated that if another, different, "decision" had been alleged and challenged, his Honour would have granted review in that respect.

The "decision" in respect of which relief was then sought by DTT was described in its further re-amended application for an order of review as follows:

"the decision of the [ASC] made on or about 29 March 1994...and announced by Press Release dated 21 April 1994 that it was in the public interest to cause proceedings to be begun and carried on by [Adsteam] against [DTT] pursuant to section 50... ."

Originally, DTT had sought review of both this decision and the decision to cause the principal proceedings to be instituted. But ultimately only the former decision was challenged. In objecting to the competency of the application, the ASC contended that there was no "decision" within the meaning of the AD(JR) Act; and that if, contrary to its contention, there was a "decision", it was not made under an enactment; and, further, that DTT was not, in any event, a "person aggrieved" within the AD(JR) Act.

(ii) The ruling on the ASC's objection to competency

After referring to the relevant authorities, especially Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, Lindgren J. said (at 575-6):

"In my opinion, the appearance to the ASC as to the public interest to which s 50 refers is not a decision under an enactment for the purposes of the AD(JR) Act because it is not `final or operative and determinative' (see Mason CJ in Bond's case at 337). In the present case the decision which has that character is the decision to begin and carry on the proceedings. Whatever the position may have been previously, once that decision was taken, the Decision was not `final or operative and determinative'. Since `review of an ultimate or operative decision on permissible grounds will expose for consideration the reasons which are given for the making of the decision and the processes by which it is made' (Mason CJ in Bond's case at 338), review of the decision to begin and carry on the proceedings would have exposed for consideration the ASC's reasons for its conclusion that it was in the public interest to do so."

Again, with respect, we agree.

His Honour went on to say (at 578) that the ASC's objection to competency should be upheld, but that because the remaining issues in the case had been extensively argued, it was appropriate he express views on some of them. His Honour said that he had reached a "firm" view that he would have granted DTT relief on the first ground (dealt with below); otherwise, he said, the views he expressed were "tentative" ones only.

(iii) The first ground on which DTT sought review - the alleged failure by the ASC to take into account the "Foss v Harbottle" consideration

In the circumstances, it is necessary to refer now only to his Honour's consideration of the first ground of review, since this was ultimately to prove decisive in the fourth judgment now under appeal. That ground, described by the primary Judge as the "Foss v Harbottle" consideration, was pleaded by DTT in these terms:

"1.

The making of the Decision was an improper exercise by the Respondent of the power conferred by Section 50 of the Act in that:

(a)

There was a failure to take into account relevant considerations.

Particulars of relevant considerations

(i): ...
(ii): ...
(iii): The Company is a publicly listed company which is able to pay its debts as and when they fall due and is actively engaged in the pursuit of its businesses under the control and direction of its board of directors who were opposed to the commencement of the Proceedings against inter alia the Applicant."

After considering the general principles governing the scope of judicial review where it is claimed that a decision-maker failed to take into account relevant considerations, as explained in the authorities, especially by Mason J. in his well-known observations in Minister for Aboriginal Affairs v Peko-Wallsend Ltd. (1986) 162 CLR 24 (at 39-41), Lindgren J. said (at 579-80):

"Clearly, the expression `the public interest' [in s.50] is one of wide import. It is an expression particularly apt to vest in a decision-maker a wide power to determine what considerations are to be taken into account and what weight is to be given to those which are taken into account. In O'Sullivan v Farrer... Mason CJ, Brennan, Dawson and Gaudron JJ said that the expression `in the public interest' when used in a statute, classically imports a discretionary value judgment to be made by reference to undefined factual matters, confined only `in so far as the subject matter and the scope and purpose of the statutory enactments may enable...given reasons to be [pronounced] definitely extraneous to any objects the legislature had in view' (citing Water Conservation and Irrigation Commission (NSW) v Browning... (Dixon J)). And in Bond's case Toohey and Gaudron JJ said of the expression `if it appears to the Tribunal that it is advisable in the public interest', that it indicates that `the considerations which may be taken into account in determining whether a licensee is not or is no longer fit and proper are not closely confined' (Bond's case, at 381-382). [Our emphasis]

The breadth of meaning which the expression is intended to have is perhaps reinforced by the consideration that the ASC `has a collective wealth of knowledge and experience in commercial practice and capital markets to draw upon' which makes it appropriate to invest it with a wide discretion in the present context... ."

His Honour (at 580-1) then discussed some of the legislative history of s.50, in particular, the fact that cl.50 of the Bill for the ASC Act had originally stipulated for the written consent of the "wronged" person, whether a company or a natural person, and to the circumstances surrounding the abandonment of this requirement in the former type of case upon the enactment of the Bill. Lindgren J. said (at 581):

"It seems to be a fair summary to say that the NCSC persuaded the Committee, contrary to the submission of the Attorney-General's Department, to accede to its request that consent to the commencement of proceedings not be required in the case of a wronged company, by reason of its assurance that proceedings would be commenced in a company's name without the Company's consent only where the directors were not independent of the wrongdoers or there existed other `most exceptional circumstances'."

His Honour (at 581-2) proceeded to refer to a section of the ASC's "Policy Statement Release 4", which dealt with "the protection of minorities" in the context of the application of s.50 as follows:

"(d): Protection of minorities

Under section 50 of the ASC Act, the ASC may cause proceedings to be carried on in the name of a company, or any other person with that person's consent, where it appears to the Commission to be in the public interest for those proceedings to be brought as a result of an investigation or examination under that Act.

...

The ASC believes that the private plaintiff is best able to assess the costs and benefits of litigation. The ASC is reluctant to undertake civil proceedings, where there is a potential plaintiff with sufficient funds to bring those proceedings, but is not prepared to do so. However, where the ASC is satisfied that civil proceedings which may be justified by reason of a contravention of the Corporations Law cannot be brought, because of the financial circumstances of a potential plaintiff, the ASC will consider an application for assistance. The ASC may be prepared to undertake a greater role in ensuring the prosecution of those proceedings if it appears to be in the public interest for the proceedings to be brought.

For example: If the ASC was satisfied that the affairs of a corporation were being conducted in a manner oppressive to minority shareholders, and those minority shareholders had insufficient resources to bring appropriate proceedings, the ASC may consider a request for intervention under section 1330 of the Corporations Law."

The learned primary Judge said that "the mere existence of a cause of action" did not satisfy the "public interest" requirement of s.50 (at 582). He added (at 583) that -

"...the ASC was bound to take into account the policy of the general law that it is a matter for the directors of a wronged company to determine whether proceedings shall be commenced in its name for the enforcement of its rights, and whether, consistently with the policy underlying and reasons for the exception allowed for in the section, it was in the public interest for proceedings to be begun and carried on in the name of the Company (I will refer to this consideration as `the Foss v Harbottle consideration'). [Our emphasis]

As can be seen from pars 53 and 58-61 of the Submission paper... the ASC did not take into account the Foss v Harbottle consideration."

Paragraph 53 of the Submission paper was in these terms:

"Action by Adsteam

53.: It is apparently unlikely that the current board of Adsteam will bring any proceedings itself in respect of the improper conduct. (Refer paragraph 58 herein and Annexure B). In the absence of action by the Commission, the conduct referred to will escape public attention."

Annexure "B" to the Submission paper comprised the three letters dated 10, 15 and 22 March 1994, already mentioned.

Paragraphs 58-61 of the Submission paper, also mentioned by his Honour, were as follows:

"The impact of proceedings:

(a)

upon Adsteam

58.: Since the relevant period, directors of Adsteam were replaced by a new board. The present board of Adsteam has been advised of the proposal to conduct recovery proceedings in the name of Adsteam and has been given the opportunity to make submissions in respect of the proposal.
59.: Correspondence with the present board of Adsteam is Annexure B hereto. The board has raised a number of issues to be taken into account by the Commission in arriving at its decision. The members are referred to these matters for full consideration. They are set out in the attached letter dated 10 March, 1944, which forms part of Annexure B.
60.: During the course of the investigation Adsteam has been cooperative. There is no reason to expect that this relationship will not continue.
61.: In the event that the action is successful, Adsteam, its members and creditors stand to recover a significant amount of money. If the action is not successful, the ASC bears the costs and costs orders in the action."

Lindgren J. went on to say (at 583):

"Annexure `B' to the Submission paper (referred to in par 59 of it) comprised the three letters dated 10, 15 and 22 March 1994 ... . It will be recalled that the concluding paragraph in the letter dated 10 March 1994 from the Company's current directors to the ASC asserted that it was a matter for the Company's directors to determine whether proceedings should be commenced in the Company's name. Having regard to the absence of wrongdoer control, prima facie so it was; or if not, the strength of the case in favour of the view that it was certainly makes the factor one that ought to have been taken anxiously into account by the ASC.

There is no question at all of the Foss v Harbottle consideration being `so insignificant that the failure to take it into account could not have materially affected the decision': see Peko- Wallsend... at 40."

His Honour then ordered that the AD(JR) Act proceedings stand over for the making of formal orders. In the meantime, DTT filed a notice of motion seeking leave to amend so as to include an attack on the decision to litigate. The application to amend, which was opposed by the ASC, was dealt with by Lindgren J. in his third judgment.

(c) The third judgment (20 April 1995 - reported at (1995) 13 ACLC 783).

His Honour granted conditional leave to amend as sought by DTT, for discretionary reasons which are not now challenged, and which need not be discussed here. The claim, as so amended, was dealt with by Lindgren J. in his final (fourth) judgment.

THE FOURTH JUDGMENT THE SUBJECT OF THIS APPEAL

In his reasons for this judgment, his Honour confirmed his earlier view that "the Foss v Harbottle consideration", or "the exceptional circumstances consideration", should have been, but was not, taken into account by the ASC; and that this vitiated the ASC decision to litigate "in the public interest".

Lindgren J. here carefully reviewed the legislative history of the precursors of s.50, including the report of the Eggleston Committee, to which reference will be made later. His Honour also revisited the chronology of events, mentioning, inter alia, the fact that since November or December 1990, Adsteam had been subjected to a "bank workout", that is, "a de facto receivership controlled by a banking syndicate". (Mr. P.J.W. Cottrell, who was appointed to Adsteam's board in June 1992, and signed, as chairman, the letter dated 10 March 1994, was also a director of National Australia Bank Limited.) The primary Judge also referred to a meeting that took place on 7 December 1993 between representatives of the ASC and Mr. Robert Wright, a director of Adsteam (appointed in June 1991) and Mr. George McDonald, Adsteam's house counsel and later its secretary. It appears that the ASC representatives then mentioned the possibility that ASC might launch proceedings in Adsteam's name against its directors and auditors for the year ended 30 June 1990, alleging that, in breach of s.565 of the Companies Code dividends had been paid otherwise than out of profits for that year, and seeking to recover damages in the amount of the dividend paid plus interest. Lindgren J. also referred to the meeting on 3 March 1994, which we have already mentioned, between representatives of the ASC and Messrs Cottrell, Wright and Hartigan on behalf of Adsteam. (It will be recalled that this meeting was referred to in Mr. Cottrell's letter dated 10 March 1994.) Having reviewed the correspondence between the parties in March 1994, his Honour concluded that this exchange had led to "an impasse". Lindgren J. then analysed the evidence of Mr. T.P. Howes, Acting Executive Director of the ASC's South Australia Enforcement Division, who gave an account, accepted by his Honour, of the proceedings of the meeting of the ASC on 29 March 1994.

Turning to the question whether the ASC had taken into account "the Foss v Harbottle consideration", his Honour said:

"Neither the officers nor the members [of the ASC] ever grappled with the issue raised by [Adsteam] in the last two paragraphs of its letter dated 10 March. It will be recalled that that letter did two things. First, it gave `preliminary reactions' to the ASC officers' request for [Adsteam's] observations on the question whether the proceedings being proposed by ASC officers would cause [Adsteam] commercial problems. Secondly, and in my view more significantly, in the last two paragraphs [Adsteam] volunteered a statement of its own position which was that ASC should provide it with `the facts which the ASC investigation ha[d] apparently established' so that the directors could form their own view as to whether it was in the Company's interest to bring civil proceedings. The paragraphs made it clear that [Adsteam] desired to have that information in order to enable its directors to assess, no doubt with legal and accounting advice, the strength of [Adsteam's] case. It would hardly be in [Adsteam's] interest to pursue lengthy proceedings against its former directors and auditors, albeit at the cost of ASC, only to fail."

Lindgren J. went on to say:

"It is clear that the view taken by ASC was that the view expressed by [Adsteam] in the last two paragraphs of its letter dated 10 March were at odds with the terms of s 50 and that the significance of [Adsteam's] letter dated 10 March was to be found only in its submission as to `commercial inconvenience'.

This approach pays too little regard to the fact that the causes of action referred to in para 50 (a), like the property referred to in para 50(b), belong to the company or other person referred to in s 50, not to ASC. In the case of a company, the section is intended to enable ASC to ensure that its causes of action of the kind referred to are enforced and its property recovered where the Company fails to enforce them or recover it respectively for some reason which is unacceptable having regard to the public interest.

His Honour then expressed his conclusion on this aspect as follows:

"I infer that ASC at no time gave to [Adsteam] an account of the evidence which it had concluded was available from its inspection of the documents and examination of the individuals, enabling [Adsteam] to decide whether or not to commence, or consent to the commencement of proceedings. Nor did ASC ever reveal to [Adsteam] the nature of the accounting or legal advice which it had obtained. ASC could have waived, subject to appropriate constraints, the legal professional privilege attached to the legal advice which it had obtained, in order to enable the directors to be acquainted with the effect of that advice, particularly as to the strength of [Adsteam's] causes of action. In relation to the accounting advice, DTT called for production of it on the hearing but it was not produced for the reason that privilege was claimed in respect of it.

The evidence does not reveal any satisfactory explanation as to why ASC did not provide to [Adsteam] the information which it requested. If ASC had prepared either an interim report under s 16 or a final report under s 17 of the Act, it would have been enabled by sub-s 18(3) of the Act to give [Adsteam] a copy. [Adsteam] was requesting only disclosure to it of `the facts which the ASC investigation ha[d] apparently established.' Although it was not requesting that ASC permit it to inspect documents obtained or that ASC provide it with a copy of the record of examinations which it had conducted, reference may be made to sub-s 37(7) and sub-s 25(1) of the Act.

By not meeting [Adsteam's] request referred to in the penultimate paragraph of [its] letter dated 10 March, ASC deprived itself of the opportunity of giving genuine consideration to the question whether [Adsteam] was failing to enforce its causes of action for such a reason that ASC was justified in doing so in its name without its consent. Expressed differently, ASC deprived itself of the opportunity of genuinely considering whether the circumstances were exceptional ones in which, consistently with the policy underlying s 50, it was appropriate for ASC to assume the role of enforcing [Adsteam's] cause of action."

For completeness, and, in any event, since the question is raised by DTT in its notice of contention, it should be noted that Lindgren J. also referred to, but held irrelevant, correspondence between the parties after the ASC decision, summarised by his Honour as follows:

"30 March 1994 (Wednesday)

Blake Dawson Waldron (Blakes), solicitors for the Company, wrote a lengthy letter (five pages plus annexures) to ASC (Bampton) in reply to ASC's letters of 15, 17 and 22 March. Blakes supplied lengthy and detailed particulars of the two commercial considerations referred to in ASC's letter of 15 March. Blakes concluded by requesting ASC to reconsider its previous `refusal' to provide to the Company the information which ASC had in its possession so that the Company might form its own opinion on whether proceedings should be begun under s 50. The letter asserted that until this opportunity was afforded, it would be premature and legally objectionable for ASC to decide to begin proceedings. (This letter was admitted into evidence provisionally and subject to an objection on the ground of relevance.)

11 April 1994 (Monday)

ASC (Paul Dugan, solicitor) replied to Blakes noting that Blakes' letter dated 30 March would be put to ASC members `for their consideration'. (This letter was similarly admitted into evidence provisionally and subject to an objection on the ground of relevance.)"

Lindgren J. said:

"DTT submitted that these two letters were relevant to the issue whether ASC took into account the Foss v Harbottle consideration. I reject the submission. I do not think that the receipt by ASC of the Company's letter or ASC's formal response make it more or less likely that the members of ASC had taken that consideration into account on 29 March. In passing I note that Mr Howes could not recall being aware of the letters and that he had ceased to have any responsibility for the matter after 29 March."

Finally, Lindgren J. revisited a submission by the ASC, rejected in the second judgment, that even the decision to litigate was not susceptible to review under the AD(JR) Act. Confirming his earlier view, the learned primary Judge said:

"As between DTT and ASC, ASC's decision to litigate was final, operative and determinative because it was the only decision for which the Act provided, and once taken, it deprived DTT of the right to have the Proceedings dismissed as having been brought without the Company's authority."

Again, we agree that the reasoning in Bond's case compels this conclusion.

ASC's GROUNDS OF APPEAL

The ASC's grounds of appeal are comprehensive and were fully developed in written and oral submissions. It is not practicable to recount them fully here. They challenge many of his Honour's findings of fact and conclusions of law, particularly where matters which were in contention were decided adversely to the ASC. The grounds of appeal may be summarised to the following effect: (1) The ASC decision was "not (judicially) reviewable", being "non-justiciable". (2) If, contrary to the ASC submission, the decision was justiciable, it could only be judicially reviewed on "Wednesbury" grounds of manifest unreasonableness, and such a case could not be made out here. (3) The construction of s.50 adopted by the learned primary Judge did not accord with "its plain meaning". (4) The ASC also challenged, in several respects, his Honour's characterisation of the ASC's process of decision-making. (5) In any event, given the complete control of the Court hearing the principal proceedings over those proceedings, relief under the AD(JR) Act should have been refused on discretionary grounds, since the Judge hearing the principal proceedings had the jurisdiction and the power to entertain any legitimate claim that DTT might have that the use of s.50 was not justified; that is, the power to grant discretionary relief given by s.16 of the AD(JR) Act should not be invoked where there is an alternative, and more appropriate, power available elsewhere should it be needed.

DTT's NOTICE OF CONTENTION

In its notice of contention, DTT contends for the following (stated summarily):

(1): In considering the "Foss v Harbottle" consideration, his Honour should have taken into account the correspondence written after the ASC decision, i.e. Adsteam's letter dated 30 March 1994 and the ASC response dated 11 April 1994.
(2): Contrary to a tentative view expressed by his Honour in his second judgment, the ASC decision was vitiated by the failure of the ASC to take into account: (a) The circumstance that the recovery of judgment in the principal proceedings would provide an inequitable result in the following sense: shareholders who had previously received the dividends now alleged to have been improperly paid, would stand to benefit again (twice) if a substantial verdict is given. On the other hand, creditors would, on the whole, not benefit from the action ("the double benefit factor"). (b) The impact the litigation might have on the members of the DTT partnership who were not involved in the Adsteam audit ("the Deloittes factor").
(3): Contrary to the tentative views expressed by his Honour in his second judgment on the material then before him, the ASC decision was vitiated by reason of the following: (a) the erroneous views of the ASC with respect to the "rectification" of certain legal and accounting areas, as requiring "clarification"; and that this could be achieved by bringing the principal proceedings. (b) The absence of adequate information to enable the ASC to decide whether to invoke s.50.
(4): It should have been held that each of the following decisions made by the ASC on 29 March 1994 was invalid: (a) The decision that it was in the public interest to cause the principal proceedings to begin and be carried on by Adsteam against DTT pursuant to s.50. (b) The decision that it was in the public interest for Adsteam to begin, and to carry on, the principal proceedings.

CONCLUSIONS ON THE APPEAL

The issues arising on the appeal may be classified into two groups: (1) Substantive issues, particularly the proper interpretation and application of s.50 in the present circumstances. (2) Adjectival issues, in particular the justiciability of the ASC decision, and whether the discretion to grant relief under s.16(1) of the AD(JR) Act ought to be exercised by setting aside the ASC decision. We will consider them in that order.

(1) The construction of s.50 in the context of the ASC decision

It will be recalled that the ASC decision was incorporated in its resolution of 29 March 1994; and that in the resolution, it was stated that, as a result of the Part 3 investigation detailed in the Submission paper -

"it appears to the [ASC], upon consideration of the matters set out in that Submission and in the exercise of the discretion conferred on the [ASC] members, to be in the public interest for [Adsteam] to commence civil proceedings pursuant to s.50 ... against the Directors during the relevant period [then named] and [against] the auditor for the 1990 financial year [DTT]...for the recovery of damages for loss caused by negligence and breach of duty in relation to the payment of a dividend from other than profit and for ancillary relief."

In our view, it is clear that, implicit, if not explicit, in the resolution is the making by the ASC of a decision, pursuant to s.50 and in the public interest, to cause the principal proceedings to be begun and carried on in the name of Adsteam.

It will further be recalled that s.50 relevantly provides that where "as a result of" an investigation under Part 3 "it appears to the Commission to be in the public interest" for a person to begin and carry on a proceeding for the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation related, the ASC (if the person is a company) may cause such a proceeding to be begun and carried on in the company's name.

It appears not to be seriously in dispute that there has been a Part 3 investigation; that, in form and in substance, the principal proceedings were "a proceeding for...the recovery of damages" for one or more of the causes of action specified in s.50(a); and that the ASC decided to bring the principal proceedings because of matters brought to its attention as a result of the investigation. It follows that the real questions for determination here involve substantive aspects of s.50, and in particular, whether the requirement, on its true construction, that "it appears to the [ASC] to be in the public interest" to begin and carry on the proceeding in the company's name was, in law, satisfied here.

The mischief sought to be addressed by s.50, and by its precursors both in this country and in England, was considered by the Eggleston Company Law Advisory Committee Report (1969). That Committee was of the view (at 8) that a legitimate use of the report of an inspector investigating the affairs of a company was:

"(1): to place before the Crown Law authorities the facts elicited by an inspector, thereby both assisting in the preparation and conduct of criminal or civil proceedings against persons who have been concerned in the affairs of the company and also enabling decisions to be made whether to institute such proceedings where this might otherwise be a matter of doubt... ."

The Committee's report went on (at 8-9):

"11.: In our view, [this use] for the report is by far the most important, and we think that the Crown Law authorities should be primarily responsible for taking action on the report. While traditionally the Crown Law authorities in such matters have only concerned themselves with criminal proceedings, the legislation contemplates that they may in appropriate cases take civil proceedings in the name of the company (see section 169(7)). [One of the precursors of s.50.] Such proceedings would be `for the recovery of damages in respect of any fraud misfeasance or other misconduct in connection with the promotion or formation of that company or in the management of its affairs or for the recovery of any property of the company which has been misapplied or wrongfully retained.'
12.: So far as we are aware, this power has never been exercised. In our view, it should be regarded as the responsibility of government to take civil proceedings in the name of the company in cases where there are seen to be good prospects of recovery, but in which, by reason of the relative poverty of the shareholders or creditors, the inability of the company itself to finance proceedings, or the practical impossibility of organizing financial support for the litigation, it is improbable that action will be taken without the support of government. Such support would need to extend to the provision of security for the defendant's costs (see section 363). If the action were successful, the Crown's costs would be recouped if and so far as the defendant had assets to meet the judgment. While we consider it important in the interests of shareholders and creditors that this obligation to take court proceedings should be accepted by the Crown, we do not suggest that any attempt should be made to write such an obligation into the legislation, since it would in our view be impossible to specify in advance the circumstances in which the power should be exercised. Much would depend on the strength of the legal opinion in support of the claim, and on the financial circumstances of the prospective defendant. Accordingly, we do no more than express the view that it would be in accordance with modern views as to the responsibility of the State for enabling under-privileged citizens to enjoy the benefits of the legal system if governments considered themselves as bound to lend them assistance in circumstances of the kind we have described. The fact that circumstances may exist in which it would be proper for them to do so is already recognized by section 169(7).

It may be noted here that, if it were accepted as a matter of policy that it was one of the responsibilities of government to see that civil justice was done as well as criminal justice in such cases, one of the reasons suggested for publication of reports would have much less force." [Emphasis added]

The Committee's recommendations included these:

"(a): The power to order special investigations of the affairs of companies should be retained for the main purpose of revealing the facts to the Crown Law authorities for use in connection with civil and criminal proceedings, but also for other reasons, of which the most important are that such investigations assist in the discovery of the factors involved in company failures, and are a valuable aid to law reform.
(b): The primary responsibility for action on reports of inspectors should rest on the Crown, not only for instituting criminal proceedings,

but also, in appropriate cases, for taking civil proceedings in the name of the company." [Emphasis added]

It appears that, apart from comments made obiter in two recent decisions, to which we will next refer, there has not yet been a reported case in which consideration has been given, in any determinative sense, to the true interpretation, and proper application, of s.50.

Observations as to the function of ss.49 and 50 were made, in passing, by Lockhart J. in Somerville v Australian Securities Commission (1995) 60 FCR 319. The issue there was removed from the present context and concerned claims for legal professional privilege and for public interest immunity made by the ASC, arising in proceedings caused to be brought by the ASC under s.50. Lockhart J. said (at 324-5):

"Sections 49 and 50 thus reflect the important role of the Commission in the area of public policy and law enforcement by pursuing criminal and civil remedies for contravention of the Corporations Law.

Section 50 was considered by Lindgren J in [his second judgment in the present matter] ... in the context of whether `the appearance to the Commission' that it was in the public interest for a person to begin and carry on a proceeding was or was not a decision under an enactment for the purposes of the ADJR Act. His Honour held that it was not because it was not a `final or operative and determinative' decision as those expressions were explained by Mason CJ in ... Bond... . Lindgren J said at 570 that s 50 conferred an `extraordinary power' on the Commission to cause a proceeding to be begun and carried on, not in the name of the Commission, but in the name of another person in respect of a cause of action of that other person. The section gives the Commission a power not available to it under the general law and renders lawful an act by it which would otherwise be unlawful. ...

An evident function of s 50 is to permit the Commission, acting in the public interest, to cause proceedings to be taken where persons or corporations have suffered loss or harm arising from fraud, negligence or misconduct, but do not have the resources to maintain expensive and complicated litigation. The section cannot be invoked without the intervention of the Commission. In the case of a company, the Commission may cause the proceeding to be begun and carried on in the company's name whether it consents or not. Doubtless the reason for the Commission being empowered to commence and carry on a proceeding if the person is a company without the person's consent is that the company would often be the party who has engaged in the relevant misconduct, a view endorsed by Lindgren J in [his second judgment] at 580-581. But in the case of natural persons, their consent for the proceeding to be begun and carried on in their names is essential. Consent of a natural person to the commencement and carrying on of the proceeding in that person's name is an essential precondition to the exercise of the power of the Commission to invoke s 50; and it seems to me that the consent must be available at all relevant times during the progress of the litigation. If, for example, settlement negotiations take place, in my view settlement cannot be achieved without the consent of the person in whose name the proceeding has been brought. The person may not be able to require the Commission to settle the matter on the person's terms, but the Commission could not conclude a settlement without the consent of the person."

Lockhart J. went on to say (at 325):

"The Commission is the active party throughout the litigation from its commencement to its conclusion. It sues in the name of the person, but the cause of action on which the proceeding is based is not created by the ASC Law in general or s 50 in particular. The cause of action must arise from the general law, whether statutory or the common law. Fruits of the litigation, if any, will benefit the person in whose name the proceeding has been brought, not the Commission. The bringing of the proceeding follows, as s 50 itself says, where it has been preceded by an investigation or from a record of an examination, in either case conducted under Pt 3 of the ASC Law which relates to `investigations and information gathering' or under a corresponding law.

For it to appear to the Commission to be in the public interest that a person begin and carry on a proceeding under s 50, the appearance must be as a result of the investigation or record of the examination as the case may be. There must be a causative link between the investigation and the formation by the Commission of its view that it appears to it to be in the public interest for the proceeding to be begun and carried on (see Deloitte at 570 per Lindgren J). It is not necessary that the relevant investigation be concluded before the Commission may invoke s 50. It may continue for some time thereafter; but something must have arisen in the investigation as a result of which, in a causative sense, it appears to the Commission to be in the public interest for a person to begin and carry on the relevant proceeding."

We agree, with respect, with these observations. We should add that, although not beyond argument, it is possible to read into the reasons of Lockhart J. approval of so much of the reasoning of Lindgren J. in applying Bond and holding that the views of the ASC as to the "public interest" considerations was not the "final or operative and determinative decision". But we cannot read these reasons of Lockhart J. as expressing any view on the correctness of the opinion held by Lindgren J. in this matter on the significance and relevance of the rule in Foss v Harbottle in the interpretation and the scope of the application of s.50. See also Walsh v Permanent Trustee Australia Ltd, Supreme Court of New South Wales, Brownie J., 14 August 1996, unreported, at 6-7.

Reference should also be made to observations by Drummond J. in Neate v ASC (1995) 60 FCR 518 on the character of the power conferred by s.50 upon the ASC, again made in passing. In upholding an objection to competency in an application for judicial review of a "decision" by the ASC to issue a notice to a person to show cause under s.600(2) of the Corporations Law, Drummond J. said (at 522):

"There is no analogy between the formation of a view that a person might be `a relevant person', made as part of a determination to issue a s 600(2) notice to a person, and a decision to commence recovery action against a person under s 50... the latter decision, which Lindgren J suggested in [his second judgment the present matter] (1995) 54 FCR 562 at 570 is reviewable under the ADJR Act, is one which s 50 of this statutory provision requires the Commission to make before it can institute recovery proceedings: that decision can only be made where the result of an investigation by the Commission causes the Commission to form the opinion that it would be in the public interest for a person to take action to recover damages for fraud and the like. Such a decision requires the Commission to go through a formal process of evaluating a particular body of information available to it and forming a conclusion on a particular issue before the decision can be made. It is a decision that is `determinative, at least in a practical sense, of the issue of fact falling for consideration': Bond at 337, ie, determinative of an issue on which the authority was required by the statute in question to reach a conclusion before it could proceed further."

We agree with these observations made, as they were, in an adjectival context. His Honour there did not need to address the present question which raises different, substantive issues, in particular, the "public interest" aspect. Again, whilst Drummond J. approved Lindgren J's identification of the material decision, we do not read the reasons of Drummond J. as expressing any opinion on what Lindgren J. held on the "public interest" element of s.50.

Section 50 is clearly remedial in character. It "thus should be construed beneficially, so as to give the most complete remedy which is consistent with the actual language employed" (per Lockhart, Lee and Sackville JJ. in Kanak v National Native Title Tribunal (1995) 61 FCR 103 at 124).

The legislative history of s.50 shows a repeated widening of the class of actions which the relevant corporate regulator has been empowered from time to time to bring in the name of a company. Until the Uniform Companies Acts passed by the States in 1961 and 1962, Australian companies legislation did not contain any provision comparable to s.50 of the ASC Act, although such a provision was introduced in the United Kingdom by s.169(4) of the Companies Act 1948. The various Australian Companies Acts passed in 1961 and 1962 copied the English provision: by s.169(7) of those Acts, the Minister was empowered to bring proceedings in the name of a company "for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation of that company or in the management of its affairs or for the recovery of any property of the company which has been misapplied or wrongfully retained, subject to certain conditions.

The limitations contained in this form of words were identified in SBA Properties Ltd v Cradock [1967] 2 All ER 610 . Section 306(11) of the Uniform Companies Code 1981 empowered the NCSC to bring proceedings in the name of the corporation for the recovery of damages "in respect of fraud, negligence, default, breach of trust, breach of duty or other misconduct in connection with affairs of, or for the recovery of property of, the corporation". This provision substantially expanded the range of conduct which could be made the subject of an action by the corporate regulator brought in the name of the corporation, removing the restrictions on the earlier provision, identified in SBA Properties.

Section 50 of the ASC Act now empowers the corporate regulator to bring and carry on a proceeding in the name of a company for the recovery of damages "for fraud, negligence, default, breach of duty or other misconduct, committed in connection with a matter to which the investigation or examination related or for recovery of property of the company". Section 50 thus further widens the range of conduct that can be the subject of proceedings by the corporate regulator in the name of a company by removing the requirement that the conduct the subject of such an action be conduct "in connection with the affairs of...the corporation to which the report or record relates", requiring instead only that that conduct be committed "in connection with a matter to which the investigation or examination related".

Moreover, the power conferred on the corporate regulator to bring proceedings in the name of a company by s.306(11) of the Uniform Companies Code 1981 was also conditioned upon the NCSC being of the opinion, on the basis of a report or the record of an examination under Part VII of the Code, that it was in the public interest for such proceedings to be brought: the NCSC could thus bring such proceedings only if they arose out of a special investigation which the relevant Minister directed the NCSC to cause to be carried out into the affairs of a particular corporation pursuant to s.290(2), 291(1) or 291(2) of the Code. Examinations could only be conducted under Part VII where the affairs of a corporation were being investigated under that Part: s.295 of the Code. While s.14 of the ASC Act still empowers the Minister to direct the corporate regulator to carry out investigations, s.13 empowers the ASC itself to undertake investigations; either kind of investigation is a sufficient foundation for a decision by the ASC to invoke s.50. The power of the corporate regulator is no longer confined to cases arising out of Ministerially directed special investigations.

Section 50 further expands the corporate regulator's powers beyond those conferred on the regulator under s.306(11) of the Uniform Companies Code 1981 by authorising the regulator to commence proceedings not only in the name of a corporation, but also in the name of a natural person, albeit in the latter case only with that person's consent.

We turn now to specific aspects of s.50.

(i) The meaning of "it appears to the [ASC]"

The meaning of this phrase "it appears to ..." was considered in Robinson v Sunderland Corporation [1899] 1 QB 751. The Public Health Act 1875 (U.K.) provided: "36. If a house...appears to...[ a local] authority...to be without..." (Emphasis added.) Channell J. said (at 757):

"The words `appear to such authority' are obviously put in for the purpose of making the local authority the judges on the question whether the house is without a sufficient water-closet, & c. It depends upon the opinion of the local authority, not upon the fact of sufficiency or insufficiency. It cannot possibly be a matter for the justices to decide; they can only inquire in this respect whether, in the opinion of the local authority, there is a sufficient water-closet, & c." [Emphasis added]

On behalf of DTT, reliance is placed upon comments made by Sir William Wade and Christopher Forsyth in Administrative Law (7th ed.) on the use of phrases such as "if the minister is satisfied that..." or "if it appears to the board" as "subjective" language which may be used as a "device". The learned authors say (at 442-3):

"[The] evident intention is to make the minister or the board the sole judge of the existence of the conditions which make the power exercisable. They indicate that instead of judging objectively whether the conditions in fact exist, the court is merely to judge subjectively whether the requisite state of mind exists in the minister or the board. But courts have an ingrained repugnance to legislative devices for making public authorities judges of the extent of their own powers, or for exempting them from judicial control. ... Although a number of decisions have given to such expressions a very nearly literal meaning, a number of others have developed lines of attack which have been able to penetrate behind the ostensible `satisfaction' or `appearance' and deal with the realities."

Wade and Forsyth go on to say (at 443):

"There is a subjective element in all discretion, and expressions such as `if the minister is satisfied' differ only in degree from a power to act `as he thinks fit'. The limits of that type of power have already been explained: the minister must act reasonably and in good faith, and upon proper grounds. In principle the same limits should operate however subjective the language, in order that the courts may always afford protection against an abuse of power such as the Act cannot have been supposed to authorise. But in some of the situations where such words are employed it is plain not only from the language but also from the context that the discretion granted is exceptionally wide."

See also the discussion by de Smith, Woolf and Jowell, Judicial Review of Administrative Action (1995) at 304, especially their observations as to Lord Atkin's dissent in Liversidge v Anderson [1942] AC 206, to be mentioned below.

The approach taken in Robinson v Sunderland has been followed in this country. For instance, in Smith v Browne [1974] VR 842, dealing with an application under the Limitation Act to extend time, Kaye J. said (at 847):

"To succeed in his application, it must appear to the Court that there is evidence to establish that the applicant has a cause of action. This does not require the Court to conduct a preliminary hearing to satisfy itself that evidence available to the applicant would enable him to prove his case. For these purposes it is sufficient that the applicant should adduce evidence from which the Court is able to form an opinion that he has a cause of action against a party for damages in respect of personal injuries suffered by him: compare Robinson v Sunderland Corporation... at 757."

See also Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 per Rogers A.J.A. at 559; and see In the Marriage of Mallet (B.E. and I.M.); Commonwealth Savings Bank of Australia Intervening (1981) 63 FLR 352 per Cook J. (Asche and Wood JJ. concurring) at 380.

Given the remedial character of s.50 and its precursors, and given also the context, that is, the prior existence of circumstances sufficient to warrant a decision by the ASC to approve a statutory investigation into the management of the affairs of a corporation after its collapse, it seems to us that the phrase "it appears to the [ASC]" in s.50 was intended to confer an extremely wide discretion.

This is not to say that the discretion is judicially unreviewable. This is made plain by the observation by the Full High Court in George v Rockett (1990) 170 CLR 104 (at 112) that Lord Atkins famous dissent in Liversidge v Anderson was "now orthodox". Nor is there anything to the contrary of this in the reasoning of the recent decision of the High Court in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 136 ALR 481. It was there held (at 494) that the statute imported a "subjective" character into the decision- making process. But that process was still treated as reviewable, albeit necessarily, in a limited fashion (at 493), an aspect to be further considered below.

The proper approach to be taken in a case such as the present is, in our opinion, shown by the reasoning of the Court of Appeal in Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No. 2) [1972] 2 QB 455, since the legislation there considered has some features which provide an analogy here. By s.141(1) of the Industrial Relations Act 1971 (U.K.) it was relevantly provided: "(1) Where it appears to the Secretary of State - (a) ... (b) ... and (c) that there are reasons for doubting whether the workers who are taking part or are expected to take part in the strike or other industrial action are or would be taking part in it in accordance with their wishes, and whether they have had an adequate opportunity of indicating their wishes..., the Secretary of State may apply to the Industrial Court for an order requiring a ballot to be taken."

The Court of Appeal held that the words "Where it appears to the Secretary of State... that there are reasons for doubting" in section 141(1)(c) did not mean that his decision was beyond challenge, but that, despite the unions' confidence that their members supported the industrial action, the Secretary of State could, in the circumstances, on reasonable grounds have formed the view that he did, and the unions had not discharged the burden of showing that no reasonable Minister could have formed that view without misdirecting himself.

This was not a proceeding for judicial review. The Secretary of State applied to the Industrial Court for an order under s.141(1). That Court made the order. The unions then appealed to the Court of Appeal against the order. The Court of Appeal dismissed the appeal.

Lord Denning M.R. said (at 492-3):

"What is the effect of the words `If it appears to the Secretary of State'? This, in my opinion, does not mean that the Minister's decision is put beyond challenge. The scope available to the challenger depends very much on the subject matter with which the Minister is dealing. In this case I would think that, if the Minister does not act in good faith, or if he acts on extraneous considerations which ought not to influence him, or if he plainly misdirects himself in fact or in law, it may well be that a court would interfere; but when he honestly takes a view of the facts or the law which could reasonably be entertained, then his decision is not to be set aside simply because thereafter someone thinks that his view was wrong."

Buckley L.J. said (at 499):

"So I turn to section 141 (1)(c). Here again I observe that the condition set out in the paragraph is a subjective one; it is the state of mind of the Secretary of State that is relevant, and I repeat that in the section I find no statutory obligation imposed on the Secretary of State to explain why he holds the view which he does, although it might often prove to be good policy to do so. That, however, is a question for him. Similarly I find in the section no statutory obligation on the Secretary of State to specify the reasons for doubt which appear to him to exist, although again it might at times be good policy to do so.

What the Secretary of State has to take into consideration under this paragraph involves, I think, to a considerable extent a political appreciation of the position. In making such an appreciation, as well as in ascertaining the underlying facts, there are likely to be many channels of information and sources of advice available to the Minister; and the justification for his view is likely to be very difficult to displace by evidence. Nevertheless, if a respondent were able to satisfy the court that on the facts of the particular case no reasonable man in the position of the Secretary of State could have reached the Minister's conclusion without misdirecting himself, I think it would be open to the court to act upon the basis that paragraph (c) was not satisfied and to treat the Minister's application to the court as misconceived or as an abuse of the court's process."

Roskill L.J. said (at 503-4):

"It is to be observed that section 141 is not designed to determine, even temporarily, let alone finally, the rights and liabilities of the parties. It is designed to secure a temporary cessation of alleged irregular industrial action short of a strike, as defined, pending the ascertainment of the individual wishes of those who are or may be going to take part in such action. To suggest that the Secretary of State's application to the Industrial Court can subsequently be defeated solely because a provisional, though informed, appraisal of highly complex contractual provisions may subsequently be proved to be erroneous in point of law after lengthy and maybe belated examination of the position by a series of appellate courts is to my mind to suggest ways and means of emasculating the statute rather than of giving effect to it; and it is the duty of a court to give effect to a statute in accordance with what the court believes to be a fair and proper construction of that statute."

These observations are, we think, very much in point here.

(ii) The meaning of "the public interest" in the present context

As Lindgren J. noted, the leading authority in this area is O'Sullivan v Farrer (1989) 168 CLR 210. Under the Liquor Act 1982 (NSW), objection to an application to remove a licence could be made on "public interest" grounds. Mason C.J., Brennan, Dawson and Gaudron JJ. said (at 216):

"[T]he Act provides no positive indication of the considerations by reference to which a decision is to be made as to whether the grant of an application would or would not be in the public interest. Indeed, the expression `in the public interest', when used in a statute, classically imports a discretionary value judgment to be made by reference to undefined factual matters, confined only `in so far as the subject matter and the scope and purpose of the statutory enactments may enable...given reasons to be [pronounced] definitely extraneous to any objects the legislature could have had in view': Water Conservation and Irrigation Commission (N.S.W.) v Browning... per Dixon J."

They went on to say (at 216-7):

"And the subject-matter to be decided, involving, as it does, the distribution and location of facilities for the supply of liquor, is one which has traditionally been seen as permitting the exercise of a broad discretion in the decision-making process."

It will also be remembered, as Lindgren J. further noted, that in Bond's Case, Toohey and Gaudron JJ. observed (at 381-2) that a reference to the "public interest" indicated that the considerations to be taken into account were not to be "closely confined".

The expression "in the public interest", as it appeared in s.41(1)(d) of the Conciliation and Arbitration Act, was considered by the High Court in Re Queensland Electricity Commission; Ex parte Electrical Trades Union of Australia (1987) 72 ALR 1; 61 ALJR 393. Mason C.J., Wilson and Dawson JJ. said (at ALR 5; ALJR 395):

"Ascertainment in any particular case of where the public interest lies will often depend on a balancing of interests, including competing public interests, and be very much a question of fact and degree."

See also Comalco Aluminium (Bell Bay) Ltd. v O'Connor (1995) 131 ALR 657 at 681; and see Botany Bay City Council v Minister of State for Transport and Regional Development, Lehane J., 28 May 1996, unreported at 48-54.

In Right to Life Association (NSW) Inc. v Secretary, Department of Human Services and Health (1995) 128 ALR 238, legislation empowered the Departmental Secretary to stop clinical trials if he became aware that they were "contrary to the public interest". Lockhart J. said (at 245):

"The public interest is a concept of wide meaning and not readily delimited by precise boundaries. Opinions have differed, do differ and doubtless always will differ as to what is or is not in the public interest."

(2) The application of s.50 in the present circumstances

It follows from the foregoing analysis that the exercise of the power, and (as the Eggleston report observed) the responsibility vested in the ASC by s.50 called for the formation of a judgment by it as to where the public interest lay, in choosing whether to bring, or not to bring, proceedings. This exercise called for an evaluation, at that stage and on the material then available to the ASC, of several, perhaps many, aspects of the public interest. Some aspects may have competed with one another. But the judgment involved in making that evaluation was essentially one of fact and degree, and by its very nature it will be something that is not easily susceptible to judicial review.

Generally speaking, the object of judicial review is to correct errors of law, not of fact. As Brennan J. said in Waterford v The Commonwealth of Australia (1986) 163 CLR 54 (at 77):

"There is no error of law simply in making a wrong finding of fact."

On the other hand, as has been noted, judicial review may be granted where the decision-maker has failed to address the correct legal questions or where the decision-maker's process of reasoning is "manifestly unreasonable".

Against that background, we turn next to consider the actual process of reasoning adopted in the present case.

(a) The matters stated to have been taken into account by the ASC.

It will be recalled that the ASC resolution dated 29 March 1994 stated, in seven separate paragraphs, "matters relevant to the public interest". We agree with the Eggleston report that it is impossible to specify in advance the circumstances in which the power conferred by s.50 should be exercised. Nonetheless, we are of the opinion that the matters stated by the ASC in its seven paragraphs were truly relevant considerations to be taken into account by the ASC in forming an opinion or judgment on the question whether it should invoke s.50. We will consider them in turn.

"1.: The investigation by the Commission into the affairs of Adsteam and its subsidiaries shows the 1990 financial year accounts disclosed profits of $236 million when on the information Adsteam had incorrectly and inappropriately treated various items and inter- company transactions. Correct treatment of these items in the accounts would have resulted in a declared loss of $244 million. The 1990 accounts were certified by Deloittes and the former directors of Adsteam as true and fair. Based on the 1990 accounts the former directors declared and paid a final dividend of 25 cents per share. The interim dividend and the final dividend totalled $228 million. Further, the alleged conduct as identified through the investigation disclosed gross negligence and a significant breach of accounting standards."

As a prima facie indication of an incorrect treatment of substantial transactions involving, in that treatment, the directors and auditors, this was, in our view, a material matter for consideration by the ASC in addressing the question whether it was appropriate to utilise s.50. It is true that s.50 confers an extraordinary power. But it must also be borne in mind that the dimensions of the Adsteam collapse were themselves extraordinary.

"2.: The proposed proceedings are to recover damages for negligence, default, breach of duty or other misconduct, committed by the former directors of Adsteam and for negligence, default and breach of duty by Deloittes in connection with the adoption of and failure to qualify misleading and incorrect accounts for the 1990 financial year and the payment of dividend other than out of profit."

When read with para.1 and the terms of s.50(a), this was also, we think, a material matter for the ASC to consider.

"3.: Adsteam has since December 1990 been under a bank workout. There is no indication from the present directors of Adsteam that they propose to commence civil proceedings."

Again, these were relevant factors in forming a judgment whether to use s.50. The circumstance of the "bank workout" indicated, as other material disclosed, that there was a "moratorium" in place, so that the ordinary processes of decision-making by management, especially high policy ones, as any decision whether or not to sue former directors and auditors was, were suspended. In a substantial corporate collapse, as here, this suspension of effective decision- making and lack of organizing capacity is, as the Eggleston report noted, an important element in the mischief sought to be addressed by s.50.

As to any indication to the ASC of the likely approach of the new directors, we agree with Lindgren J. that the correspondence had reached an "impasse". This was consistent with the existence of the moratorium then in place. But, in any event, whatever may have been the position vis-a- vis the former directors, it is extremely significant that although, as we have seen, lengthy correspondence was exchanged, the directors at no stage suggested that they might resolve to sue the auditors or expressed any interest at all in the ASC's proposal to take action against the auditors.

"4.: The Commission, in commencing this action, would be taking action in support of the objectives outlined in section 1(2)(a),(b),(d) and (g) of the Australian Securities Commission Act 1989. The Corporations Law gives the Commission a significant role in the regulation of directors' duties, accounting obligations and auditors' duties."

The provisions of s.1(2)(a), (b), (d) and (g) have been set out earlier when discussing the legislative scheme. These matters, together with the statutory role of the ASC in the regulation of directors' and auditors' duties, were plainly relevant considerations for s.50 purposes.

"5.: If the Commission commences proceedings against the former directors of Adsteam and Deloittes it would have a strong regulatory effect of clarification of accounting standards in relation to the presentation of consolidated accounts of public company groups."

Whilst this consideration is necessarily a matter of opinion rather than a fact, it was nevertheless capable of advancing the public interest and is thus a relevant factor, consistently with the provisions of s.1(2) of the ASC Act.

"6.: The proposed proceedings would demonstrate to directors and auditors the duty of care imposed upon them in relation to the adoption of accounts."

In principle, this is similar to para.5.

"7.: Matters outlined in the Submission paper, in particular in paragraph 52."

Again it will be convenient to consider each sub- paragraph of para.52 of the paper in turn.

"52.1: the strong regulatory purpose in the clarification of the application of accounting standards in relation to the presentation of consolidated accounts of public company groups;"

This is similar to para.5 above.

"52.2: the need to address creative group accounting practices to create profits and disguise losses upon consolidation, transactions within a group, recovery of receivables within a group and the application of accounting standards to these issues;"

This is also similar to para.5.

"52.3: the use of reserves, asset valuations and carrying values which would also be addressed in the course of proceedings;"

This is another aspect of para.5, and thus material.

"52.4: the issue of improper payments of cash from an ailing public company. When Adsteam was not generating enough income to meet its operational needs, it paid out, as dividend, cash and shares totalling $228 million. This is serious, negligent and irresponsible conduct on behalf of the directors and on behalf of Deloittes who condoned such conduct;"

This raises similar issues to para.52.2.

"52.5: the payment of a dividend out of other than profits. `It is a fundamental principle of company law that the whole of the subscribed capital of a company with limited liability, unless diminished by expenditure on the company's objects...shall remain available for discharge of its liabilities' per Kitto J in David Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1958) 100 CLR 392 @ 413;"

This is similar to para.52.4.

"52.6: the conduct in question amounts to a gross breach of accounting rules. It contravenes fundamental principles of company law and management. It goes to the heart of audit practice. Adsteam was a substantial Australian public corporation;"

This is similar to para.52.2

"52.7: there must be integrity of information published on behalf of a publicly listed company. The market is informed by and acts in response to information published. In order to ensure maximum credibility of Australian corporations and securities markets the ASC must pursue accurate reporting. There is a clear public interest in proceedings which encourage full and fair and reliable reporting process on the part of those involved in the presentation of company accounts;"

This reflects aspects of s.1(2)(a) and (b) of the ASC Act and is similar to other factors previously discussed.

"52.8: Given the nature of the action, the proper plaintiff is the company itself. Absent any proceedings by the company itself, the shareholders and creditors may be without remedy."

This echoes observations of the mischief identified in the Eggleston report and is thus relevant.

"52.9: Adsteam has been in a bank workout position since December 1990. It is one of the incidents of this mode of workout that there is no liquidator or other external administrator in place to examine and investigate the conduct of past board members as there would in a formal liquidation. In these circumstances it is all the more important that deleterious conduct identified and investigated by the Commission be pursued in the appropriate jurisdiction."

This is similar to para.52.8.

It follows, in our view, that the matters stated by the ASC to be the "relevant" matters were appropriate to be taken into account in addressing the question whether or not to invoke s.50.

(b) Was the ASC bound to have regard to the "Foss v Harbottle" consideration?

As we have seen, it was upon this ground of review that Lindgren J. set aside the ASC decision. The essence of the ground, as pleaded, was that the ASC failed to take into account, as relevant considerations, the circumstances that Adsteam was a publicly listed company able to pay its debts as they fell due and actively pursuing its business. Moreover, it was said, the board of directors "were opposed to the commencement of the proceedings against, inter alia [DTT]."

On the uncontested facts, when the matter is looked at as at the relevant date, 29 March 1994, there are difficulties in accepting that this ground as pleaded provided a true and fair view of the situation. Adsteam was not the subject of any formal external or other administration; but it was the subject of an informal one in the form of a bank "workout" or "moratorium". Moreover, it was engaged in a program of asset disposal of a kind appropriate to an administration. In short, Adsteam was, then at least, hardly carrying on its ordinary business in the ordinary way, as the pleading strongly implies. Rather, the board of directors were then confronted with an extraordinary situation, and that situation is not adverted to at all in DTT's pleading. Further, the pleading fails to mention that the directors' opposition was confined to the proposal that former directors be sued. Mr. Cottrell's letter dated 10 March 1994 certainly indicated that opposition but, significantly, as we have said, no mention was there made of the position of the auditors.

An impression of the magnitude of Adsteam's difficulties can be gathered from comments in the annual reports in the years immediately following Adsteam's collapse. The directors said, in their 1991 report:

"The consolidated loss of the Group after tax, minority interests and extraordinary items was $1,358,205M.

... [T]he Company was forced by those circumstances to seek to enter a moratorium with its banks and sell assets at a time not of our own choice. The problem has been compounded by a reduction in the expected value of assets due to the general economic climate.

...

In December 1990 the Company requested its lenders to reschedule their loans to 31 December 1991 to enable a longer term refinancing plan to be prepared... .

The Company's representatives have had discussions with all of its bankers in Australia and overseas and there is substantial indicated support for the plan.

...

The continued support of the bankers to the group and the implementation of the financing plan is inherent in the going concern assumption on which the Company's accounts, this report and the statement by directors on page 34 are based."

In their report for this same year, the auditors stated:

"The accounts have been prepared on a going concern basis which assumes continuity of normal business activities, the realisation of assets and the settlement of liabilities in the ordinary course of business. The group at balance date had current liabilities of $1,246,052,000 and the current assets of $488,783,000. ... The ability of the Company and the group to pay its ordinary debts as and when they fall due is dependent upon the continuing support of the group's bankers and acceptance of the debt restructuring program."

It will be recalled that Lindgren J. was of the view that the ASC was bound to take into account "the policy of the general law [i.e. the rule in Foss v Harbottle] that it is a matter for the directors ... to determine whether proceedings shall be commenced in its name for the enforcement of its rights... "; but did not do so.

With respect, we have difficulty in accepting this analysis, for several reasons.

In the first place, as has been noted, the directors had not stated their opposition vis-a-vis their auditors.

Secondly, as a matter of statutory interpretation, the justification for the importation of the rule in Foss v Harbottle into s.50 is not readily apparent. Indeed, there are strong indications to the contrary.

Section 50 is, as has been said, clearly remedial legislation. The older general law rules in this area, particularly Foss v Harbottle itself, are bedevilled with complexity. (For a recent example of the complications that can arise, see Christianos v Aloridge (1995) 131 ALR 129.) There is nothing express in the language of s.50 to indicate that its operation was limited to situations where the board concurred in the institution of the proceedings. Logic, and experience of the kind discussed in the Eggleston report, would suggest the contrary. We would therefore see no basis, or reason, for importing such a sophisticated concept into s.50.

The ASC policy statement, already mentioned, is, at best from DTT's standpoint, equivocal on the present question. It will be remembered that, in the end, it was there stated that the ASC "may be prepared to undertake a greater role...if it appears to be in the public interest". When read as a whole, the policy statement does appear, correctly we think, to address the mischief sought to be remedied by s.50 in a way that is similar to the approach taken by the Eggleston Committee.

The learned primary Judge was understandably much influenced by the requirement that the consent of a natural person be given. But where, as here, the "public interest" is involved, a technical approach to statutory construction, by reference to other elements of s.50, is to be eschewed. Thus, for instance, it has been often said that the application of technical rules of construction such as the expressio unius rule is ordinarily inappropriate in the present kind of context where the discretion is "unconfined" by the section (see O'Sullivan v Farrer, above, at 215). That is, natural persons may be in a different position, but this says nothing about the position of companies.

It follows, in our view, that the "public interest" requirement in s.50 imports (in the language of O'Sullivan v Farrer and Browning's Case) "a discretionary value judgment to be made by reference to undefined factual matters, confined only `in so far as the subject matter and the scope and purpose of the statutory enactments may enable...given reasons to be [pronounced] definitely extraneous to any objects the legislature could have had in view.'".

In our opinion, there is nothing in the statutory context or purpose to compel the conclusion that Foss v Harbottle principles should be taken into account in forming a "public interest" judgment under s.50.

It follows that the ASC was not bound to take the "Foss v Harbottle" factor into account.

It further follows that we do not need to consider what, if anything, the ASC should have done here if a Foss v Harbottle implication should have been read into s.50.

(c) Did, as contended by DTT in its notice of contention, the ASC fail to take into account material considerations?

As Mason J. observed in Peko-Wallsend, above (at 40), where the discretion is (relevantly) unconfined by the statute, the Court will not find that a decision-maker is bound to take a particular matter into account "unless an implication that he is bound to do so is to be found in the subject-matter, scope and purpose of the Act". (Our emphasis)

(i) The correspondence exchanged after the making of the ASC decision

In our opinion, Lindgren J. was plainly correct to reject this correspondence as immaterial.

(ii) The "double benefit" factor, the "Deloittes factor" and other grounds in DTT's notice of contention

As has been noted, Lindgren J. expressed tentative views on these questions. Given the essentially unconfined nature of the discretion, we agree with the primary Judge, for the reasons he gave, that in the sense explained by Mason J. in Peko-Wallsend, the ASC was not obliged to take these factors into account.

We note, in this connection, that the difficulties confronting an applicant for judicial review in the present kind of context were adverted to by the Full Court (Gummow, Hill and Cooper JJ.) in Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69. Judicial review was there sought of a decision by the ASC to authorise another person to apply to the Court for an examination order under s.597 of the Corporations Law. Their Honours said (at 82-3):

"Were a question of standing to arise before the Court in a case where the applicant was a person authorised by the Commission, there would be practical difficulty in mounting a collateral attack upon the validity of the authorisation unless, on the face of that authorisation, it was apparent that it was outside power. A person seeking to challenge the validity of the appointment would not have available the specific provisions of the ADJR Act facilitating such a challenge. Practically the fact of authorisation would preclude a collateral attack. [Our emphasis]

Once these matters are accepted, it becomes apparent that if a person seeks to challenge the validity of the Commission's authorisation, that question will appropriately be decided in proceedings for judicial review of the authorisation. A challenge going to the appropriateness of an examination order being issued in respect of a particular examinee, which may encompass a question of the purpose of the applicant for examination will, of course, be appropriately raised before the Court in the review of a decision to grant an examination order. It will ordinarily not arise for consideration in relation to the validity of the authorisation.

It follows, in our view, that it would not have been an appropriate exercise of discretion in the present case to have dismissed the judicial review proceedings on the basis that the issue in both was identical and was more appropriately litigated in proceedings for review of the Registrar's order."

It follows, in our view, that on the substantive questions of the proper interpretation and application of s.50, the challenge to the ASC decision should have failed at first instance. The appeal must be allowed.

Counsel and solicitors for the appellant:	Messrs. T.A. Gray QC and R.J. Whitington QC, and Ms. A.V. Moroney, instructed by the Australian Securities Commission
Counsel and solicitors for the respondent:	Mr. R.A. Conti QC and Dr.J.E. Griffiths, instructed by Mallesons Stephens Jaques

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