SUPREME COURT OF QUEENSLAND

Transcription

1 SUPREME COURT OF QUEENSLAND CITATION: PARTIES: Australian Securities Investments Commission v Varsity Lodge P/L & Ors; Australian Securities Investments Commission v Jacara Properties Australia P/L & Ors [07] QSC 376 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v VARSITY LODGE PTY LTD ACN (first respondent) VARSITY LODGE IPSWICH PTY LTD ACN (second respondent) ROBERT THOMAS ADCOCK (third respondent) COLIN GRAHAM FRANCIS (fourth respondent) LIFECARE SERVICES AUSTRALIA PTY LTD ACN (fifth respondent) SILTRA PTY LTD ACN (sixth respondent) DAVID JOSEPH STOYAKOVICH (seventh respondent) VARSITY LODGE IPSWICH UNIT INVESTMENT TRUST (TRUSTEE) (eighth respondent) AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v JACARANDA PROPERTIES AUSTRALIA PTY LTD ACN (first respondent) KALLANGUR MEWS PTY LTD ACN (second respondent) LIFECARE SERVICES AUSTRALIA PTY LTD ACN (third respondent) DAVID JOSEPH STOYAKOVICH (fourth respondent)

2 ROBERT THOMAS ADCOCK (fifth respondent) COLIN GRAHAM FRANCIS (sixth respondent) KALLANGUR MEWS UNIT TRUST (TRUSTEE) (seventh respondent) FILE NO: SC No 6764 of 06; SC No 677 of 06 DIVISION: PROCEEDING: ORIGINATING COURT: Trial Civil Application Supreme Court DELIVERED ON: 29 November 07 DELIVERED AT: Brisbane HEARING DATE: 29 November 07 JUDGE: ORDER: Fryberg J As in Annexure A Annexure B CATCHWORDS: Corporations Management administration Duties liabilities of officers of corporation Offences Contravention of provisions of the Corporations Act 0 Procedure Penalty Other matters Winding up Declaratory orders sought Declaration of contravention of legislation Exercise of judicial discretion Respondents agree to abide by orders of the court Declaration made Corporations Act 0 (Cth) s, see, s9a Australian Securities Investments Commission v Fuelbanc Australia Limited [07] FCA 9 discussed Australian Securities Investments Commission v Intertax Holdings Proprietary Limited Ors [06] QSC 276 distinguished Russian Commercial Industrial Bank v British Bank for Foreign Trade Ltd [92] 2 AC 438 cited COUNSEL: SOLICITORS: Applicant: R Derrington SC M Luchich Respondents: No appearance Applicant: Direct brief by Australian Securities Investment Commission Respondents: No appearance 2

3 SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION FRYBERG J [07] QSC 376 No 6764 of 06 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant VARSITY LODGE PTY LTD (ACN ) Respondents VARSITY LODGE IPSWICH PTY LTD (ACN ) ROBERT THOMAS ADCOCK COLIN GRAHAM FRANCIS LIFECARE SERVICES AUSTRALIA PTY LTD (ACN ) SILTRA PTY LTD (ACN ) DAVID JOSEPH STOYAKOVICH VARSITY LODGE IPSWICH UNIT INVESTMENT TRUST (TRUSTEE) No 677 of 06 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant 3

4 JACARANDA PROPERTIES AUSTRALIA PTY LTD (ACN ) Respondents KALLANGUR MEWS PTY LTD (ACN ) LIFECARE SERVICES AUSTRALIA PTY LTD (ACN ) DAVID JOSEPH STOYAKOVICH ROBERT THOMAS ADCOCK COLIN GRAHAM FRANCIS KALLANGUR MEWS UNIT TRUST (TRUSTEE) BRISBANE..DATE 29//07 ORDER HIS HONOUR: There are before the Court two applications for final relief by way of winding-up of two managed investment schemes. The applications are brought pursuant to section EE of the Corporations Act. They have been before the Court since December 06 until very recently have been hotly contested. As a result, they were not dealt with in the Applications jurisdiction but were set down, by order of the Senior Judge Administrator, for a two day hearing commencing today in the civil list.... 4

5 HIS HONOUR: Yesterday notices in each action were served on ASIC that the respondents were no longer represented were now acting in person. The notices on behalf of the corporate respondents were signed by Mr Francis, who also signed on his own behalf. Mr Adcock Mr Stoyyakavich, signed personally. When the application was called this morning there was no appearance for any of the respondents. On behalf of ASIC, Mr Derrington of senior counsel, has provided me with careful submissions setting out the case against the respondents. I am satisfied that the case so set out warrants the grant of the relief sought. It is apparent that the respondents were aware of the proceedings today through their solicitor I have no impediment to my hearing the matter at this time. The orders for winding up in the form set out in the draft should be made. ASIC also seeks declarations that the respondents operated an unregistered managed investment scheme in contravention of Section (e)(d)(5) of the Corporations Act, that they have contravened Section 9A of that Act in that they carried on a financial services business without holding an Australian Financial Services Licence. One of the matters which a Court will always take into account in deciding whether to grant a declaration is the utility of the declaration. In the present case Mr Derrington submitted that the declarations sought had utility in that they were 5

6 evidence to the public that the community would not tolerate the sort of behaviour indulged in by the respondents that they represented a signal to the public that the conduct was reprehensible. I summarise the submission, I hope, accurately. Presumably it is ASIC's intention to publicise the declarations, otherwise this utility would not be achieved. Mr Derrington did not dissent from the suggestion that this was what was intended. That raises the question whether the declarations ought to be made as a matter of discretion, having regard to the possibility of criminal proceedings being brought by ASIC in respect of the matters, the substance of the declarations. That matter was one which I considered in Australian Securities Investments Commission v Inter-Tax Holdings Proprietary Limited Others [06] QSC 276. In that case the relevant respondents were represented vigorously opposed the making of declarations in similar terms. I held, that in the exercise of my discretion, it was inappropriate to grant the declarations sought. I acknowledged the existence of the jurisdiction to make a declaration in association with the winding-up of a scheme, in the context, I would have hoped that it was apparent that my ex tempore reasons referred to a declaration of the type now under consideration. The reason for declining to exercise that jurisdiction in the circumstances of that case were specified as being that ASIC was unwilling to give an 6

7 undertaking not to prosecute the respondents for the offences created by the conduct. I referred then briefly to some of the cases to which my attention had been drawn. Since that decision, the question has been considered by Justice Heery in the Federal Court in Australian Securities Investments Commission v Fuel Bank Australia Limited [07] FCA 9. His Honour concluded that he should not follow my decision. I am unsure precisely what his Honour meant by that since my decision involved a simple exercise of discretion, as I apprehend it, was not a decision on a point of law. It would not be a decision which, I would have thought, created a precedent for anything. However, his Honour seems to have understood it as involving a consideration of the jurisdiction of a Court to make declarations I am indebted to Mr Derrington for his analysis assistance in relation to it. His Honour examined the statutory basis of the Federal Court's jurisdiction to make declarations noted that the declarations proposed in the case before him simply recorded in a formal way the conclusion which the Court had reached as to the legal consequences of specific conduct of the defendants. He expressed the view that the effect on any future hypothetical criminal prosecution would be the same whether the Court granted declarations together with injunctions or granted injunctions only. Either way, there would be a finding of a Court as to the lawfulness of the conduct of the subject of the criminal proceeding. He 7

8 continued by expressing the view that there was high authority against what he described as "the supposed limitation on the exercise of the discretionary power to grant declaratory relief". He referred, in particular, to Sankey v Whitlam (978) 42 CLR. 0 Over the next several pages of his Honour's judgment he considered a number of other cases relating to the power of the Court to make the relevant declaration, that is, a declaration in effect of criminal conduct. I need not refer to those cases in any detail because I entirely agree, as I had sought to make clear in Intertax, that the Court has such a jurisdiction. Moreover, in a situation where there is no significant risk of a prosecution eventuating, I see no reason why that jurisdiction should not be exercised. The question of whether there may be a refusal to exercise the jurisdiction in circumstances where there was a such a perceived risk has not, as far as I am aware, been discussed expressly in most of the cases to which his Honour has referred. In the present case, I have been informed that ASIC declines to undertake either not to institute criminal proceedings against the respondents or to make application to the Court to have any declarations set aside in the event that such proceedings are instituted. That would have been a matter of some concern to me. It is apparent from the affidavit material that the conduct described is such that one would 8 ORDER

9 expect ASIC to give very serious consideration to the institution of proceedings. It would be no surprise if it were felt that civil proceedings were not an adequate response to what has gone on. It is probably undesirable that in these reasons I say much more about that. 0 Having regard to the reasons given to me for the utility of the declaration it seems to me that there might be two problems which could arise from the making of declaratory orders in the present case. The first is that, in the event that the proceedings which the evidence suggests are quite a serious possibility are in fact started, there will be a declaration on the record of a superior court of record foreclosing the outcome of those proceedings. In the event of an acquittal, there will be inconsistent curial outcomes. Even without that result, there is the serious possibility of embarrassment in the course of the proceedings. Second, I was informed by Mr Derrington that both of the offences created by the two sections are indictable offences that they would be tried by jury. That, it seems to me, creates a substantial factor operating in a way which conflicts with what ASIC proposes to do with the declarations, that is to say to publicise them. It is, I think, elementary that it is generally undesirable for a jury to be made aware of declarations of this sort. 9 ORDER

10 Those, then, are powerful factors, in my judgment, which would tend against the granting of the declarations sought. I emphasise that I am not now talking about speculative hypothesis, but about matters which, on the evidence, are real possibilities. The same was true in Intertax. 0 On the other h, there is an important distinction between the present case Intertax. In Intertax, the orders sought were opposed. In the present case, they are not opposed. On 9 November, the solicitors for all but one of the respondents notified ASIC in writing that they had received instructions from their clients that no witnesses would be required for cross-examination, no new material would be filed, that the respondents would be seeking to agree consent orders with ASIC, that for those orders not agreed, the respondents would abide by the order of the Court. The one respondent referred to has consented in writing to the orders sought. Consistently, with that attitude, the respondents have not appeared today (there having been no consent reached between most of them ASIC). The respondents constitute a proper contradictor, that is, "someone presently existing who has a true interest to oppose the declaration sought", to use the words of a case cited by 0 ORDER

11 Heery J, Russian Commercial Industrial Bank v. British Bank for Foreign Trade Limited [92] 2 AC, 438 at page 448. Here the respondents are, in my judgment, proper contradictors. They have chosen simply to consent to or abide the order of the Court. They have not opposed the making of 0 the order sought, which includes, of course, the declarations. In my judgment, the respondents, who are experienced persons, one of them being a former registered liquidator, would be well aware of what matters are in their interests what matters are not. The fact that they do not oppose the orders sought is a powerful reason in favour of the granting of the orders. Litigation is conducted on the basis that people will look after their own interests. In circumstances where litigants are unrepresented, it is sometimes necessary for the Court to make allowances to bend somewhat toward ensuring that their interests are protected in the event that they, through lack of legal knowledge, are unable properly to protect their interests themselves. This is not such a case. This is a case where the respondents are perfectly able to look after their own interests have been doing so, albeit through solicitors until very recently, to great effect. Whether they see any detriment to themselves in having declarations made is a matter which I may properly consider. ORDER

12 What, then, is the proper way to exercise the discretion? On balance, I have come to the conclusion that in the circumstances I should make the declarations which are sought. I do so, not because I have had any change in mind in relation to the principles upon which the relevant discretion should be 0 exercised, but because the circumstances of the case warrant the exercise of the discretion in this way. The declarations in the draft provided to me are somewhat inadequate in their terms in that they do not specify the dates of the conduct referred to are rather elliptical in their recitation of the elements of the section. I underst Mr Derrington proposes to redraft them subject to that redrafting I am content to make orders in accordance with the drafts ORDER

13 ANNEXURE A SUPREME COURT OF QUEENSLAND Registry: Brisbane Number: BS 6764 of 06 IN THE MATTER OF VARSITY LODGE PTY LTD ACN AND OTHERS Applicant: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION 0 First Respondent: VARSITY LODGE PTY LTD ACN Second Respondent: VARSITY LODGE IPSWICH PTY LTD ACN as trustee for the Varsity Lodge Ipswich Unit Investment Trust Third Respondent: LIFECARE SERVICES AUSTRALIA PTY LTD ACN Fourth Respondent: Fifth Respondent: Sixth Respondent: ROBERT THOMAS ADCOCK COLIN GRAHAM FRANCIS DAVID JOSEPH STOYAKOVICH Seventh Respondent: SILTRA PTY LTD ACN ORDER Before: Fryberg J. Date: 29 November 07 Initiating document: Amended Originating Application filed 7 December 06 THE ORDER OF THE COURT IS THAT. For the purposes of this order:- 3 ORDER

14 a. the term the Varsity Lodge Scheme means the managed investment scheme operated by the First to Sixth Respondents involving property developments at: i. Varsity Lodge, 6 Thorn Street Ipswich, (Lot on Registered Plan 74962, County of Stanley, Parish of Ipswich. Lot No 2 on Registered Plan No 00686, County of Stanley, Parish of Ipswich Lot 6 on Registered Plan , County of Stanley, Parish of Ipswich) in the State of Queensl ( the Varsity Lodge Property ); ii. Wahroonga Manors, 6 Stephenson Street, Sadliers Crossing, Queensl (Lot 3 Registered Plan 23939, County of Stanley, Parish of Ipswich, Lot 4 Registered Plan 239, County of Stanley, Parish of Ipswich) in the State of Queensl ( the Wahroonga Manors Property ). 0 IT IS DECLARED THAT: 2. In the period from January 04 until 3 September 06 each of the First, Second, Third, Fourth, Fifth Sixth Respondents in contravention of section ED(5) of the Corporations Act 0 (Cth)( the Act ) operated a managed investment scheme, being the Varsity Lodge Scheme, which scheme was not registered in accordance s.ed() of the Act. 3. In the period from March 04 until 2 June 04 each of the First, Second, Third, Fourth, Fifth Sixth Respondents in contravention of section 9A of the Act carried on a financial services business without holding an Australian Financial Services Licence. IT IS ORDERED THAT: 4. The Varsity Lodge Scheme be wound up pursuant to s.ee of the Act. 5. Justin Dennis Walsh of Ernst & Young ( the Liquidator ) be appointed to wind up the Varsity Lodge Scheme be appointed Trustee of the Varsity Lodge Ipswich Unit Investment Trust in place of the Second Respondent. 6. For the purposes of winding up the Varsity Lodge Scheme the Liquidator have all powers that a liquidator of a company would have pursuant to section 477 of the Act 4 ORDER

15 which will apply mutatis mutis as if the Varsity Lodge Scheme were a company, save for any powers in relation to share capital. 7. All property held by the Second Respondent on trust for the Varsity Lodge Ipswich Unit Investment Trust vest in the Liquidator for the purpose of winding up the Varsity Lodge Scheme otherwise for the purposes of or in connection with the said scheme Each of the Respondents deliver up to the Liquidator any books, records or documents of any sort in their possession, power or control relating to the operation or conduct of the Varsity Lodge Scheme on or before 4pm on 5 December Without limiting the generality of paragraph 8 of this order, each of the Respondents deliver up to the Liquidator all books, records documents of any sort in their possession, power or control relating to: a. the contract dated 6 April 04 between the Seventh Respondent the Second Respondent for the sale of the Wahroonga Manors Property or any other contract, agreement, arrangement or transaction between the Seventh Respondent any of the Respondents in relation to the Wahroonga Manors Property; b. the transfer of registered mortgage dealing number 70695over the Wahroonga Manors Property; c. the creation of registered mortgage dealing number over the Wahroonga Manors Property; d. the transfer of title in the Wahroonga Manors Property to Wahroonga Mews Pty Ltd ACN The Liquidator be entitled to receive fair reasonable remuneration for work done in discharging his obligations under this order on the basis of his time charges plus GST from time to time all reasonable out of pocket expenses, such remuneration expenses to be deducted from the assets of the Varsity Lodge Scheme.. The Liquidator shall not be entitled to payment of such remuneration unless the Liquidator: 5 ORDER

16 a. Receives approval from two thirds in value of the investors in the Varsity Lodge Ipswich Unit Investment Trust; or b. If a committee of investors has been appointed, obtains approval from the committee of investors; or c. Obtains approval of the Court, for such payment The investors may, at a meeting of investors convened by the Liquidator at the request of any investor, determine whether a committee of investors of no less than three in number should be formed. 3. Should a committee of investors be formed the Liquidator shall have regard to the wishes of the said committee in discharging his duties under this order. 4. Each of the First to Sixth Respondents, by themselves, their servants, agents employees, be permanently restrained from promoting or operating the Varsity Lodge Scheme or any other unregistered managed investment scheme in contravention of section ED(5) of the Act. 5. Each of the First to Sixth Respondents, by themselves, their servants, agents employees be permanently restrained from dealing in financial products or carrying on a financial services business, including, without limitation, by the promotion conduct of the Varsity Lodge Scheme. 6. Each of the parties, the investors the Liquidator have liberty to apply. 7. The Seventh Respondent pay the Applicant's reserved costs of the application for an interlocutory injunction heard on 3 September The First to Sixth Respondents pay the Applicant s costs of incidental to these proceedings (including reserved costs except for the costs referred to in paragraph 7 above) to be assessed on the stard basis. 6 ORDER

17 ANNEXURE B SUPREME COURT OF QUEENSLAND 0 Registry: Brisbane Number: BS 677 of 06 IN THE MATTER OF JACARANDA PROPERTIES AUSTRALIA PTY LTD ACN AND OTHERS Applicant: First Respondent: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION JACARANDA PROPERTIES AUSTRALIA PTY LTD ACN Second Respondent: KALLANGUR MEWS PTY LTD ACN as trustee for the Kallangur Mews Unit Trust Third Respondent: Fourth Respondent: Fifth Respondent: Sixth Respondent: LIFECARE SERVICES AUSTRALIA PTY LTD ACN ROBERT THOMAS ADCOCK COLIN GRAHAM FRANCIS DAVID JOSEPH STOYAKOVICH ORDER Before: Fryberg J. Date: 29 November 07 Initiating Document: Amended Originating Application filed 7 December 06 7 ORDER

18 THE ORDER OF THE COURT IS THAT 9. For the purposes of this order:- a. the term Kallangur Mews Scheme" means the managed investment scheme operated by the Second to Sixth Respondents involving the property development at Kallangur Mews, 34 Duffield Road, Kallangur (Lot No on Registered Plan 856, County of Stanley, Parish of Redcliffe) in the State of Queensl ("the Kallangur Mews property"). 0 IT IS DECLARED THAT:. In the period from August 04 until 3 September 06 each of the First, Second, Third, Fourth, Fifth Sixth Respondents in contravention of section ED(5) of the Corporations Act 0 (Cth)( the Act ) operated a managed investment scheme, being the Kallangur Mews Scheme which scheme was not registered in accordance s.ed() of the Act. 2. In the period from 2 August 04 until 2 November 04 each of the First, Second, Third, Fourth, Fifth Sixth Respondents in contravention of section 9A of the Act carried on a financial services business without holding an Australian Financial Services Licence. IT IS ORDERED THAT: 22. The Kallangur Mews Scheme be wound up pursuant to s.ee of the Act. 23. Justin Dennis Walsh of Ernst & Young ( the Liquidator ) be appointed to wind up the Kallangur Mews Scheme be appointed Trustee of the Kallangur Mews Unit Trust in place of the Second Respondent. 24. For the purposes of winding up the Kallangur Mews Scheme the Liquidator have all powers that a liquidator of a company would have pursuant to section 477 of the Act which will apply mutatis mutis as if the Kallangur Mews Scheme were a company, save for any powers in relation to share capital. 25. All property held by the Second Respondent on trust for the Kallangur Mews Unit Trust vest in the Liquidator for the purpose of winding up the Kallangur Mews Scheme otherwise for the purposes of or in connection with the said scheme. 8 ORDER

19 26. Each of the Respondents deliver up to the Liquidator any books, records or documents of any sort in their possession, power or control relating to the operation or conduct of the Kallangur Mews Scheme on or before 4pm on 5 December The Liquidator be entitled to receive fair reasonable remuneration for work done in discharging his obligations under this order on the basis of his time charges plus GST from time to time all reasonable out of pocket expenses, such remuneration expenses to be deducted from the assets of the Kallangur Mews Scheme The Liquidator shall not be entitled to payment of such remuneration unless the Liquidator: a. Receives approval from two thirds in value of the investors in the Kallangur Mews Unit Trust; or b. If a committee of investors has been appointed, obtains approval from the committee of investors; or c. Obtains approval of the Court, for such payment. 29. The investors may, at a meeting of investors convened by the Liquidator at the request of any investor, determine whether a committee of investors of no less than three in number should be formed.. Should a committee of investors be formed the Liquidator shall have regard to the wishes of the said committee in discharging his duties under this order. 3. Each of the First to Sixth Respondents, by themselves, their servants, agents employees, be permanently restrained from promoting or operating the Kallangur Mews Scheme or any other unregistered managed investment scheme in contravention of section ED(5) of the Act. 32. Each of the First to Sixth Respondents, by themselves, their servants, agents employees be permanently restrained from dealing in financial products or carrying on a financial services business, including, without limitation, by the promotion conduct of the Kallangur Mews Scheme. 9 ORDER

20 33. Each of the parties, the investors the Liquidator have liberty to apply. 34. The Respondents pay the Applicant s costs of incidental to these proceedings (including reserved costs) to be assessed on the stard basis. 0 ORDER