Australian Securities and Investments Commission v Intertax Holdings
[2006] QSC 276
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- Notable Unreported Decision
- Australian Securities and Investments Commission v Intertax Holdings[2006] QSC 276
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Australian Securities and Investments Commission v Intertax Holdings[2006] QSC 276
Australian Securities and Investments Commission v Intertax Holdings[2006] QSC 276
SUPREME COURT OF QUEENSLAND
CITATION: | Australian Securities and Investments Commission v Intertax Holdings & ors [2006] QSC 276 |
PARTIES: | AusTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v INTERTAX HOLDINGS PTY LTD ACN 112 714 566 (first respondent – not a party to the application) INTERTAX PROPERTY INVESTMENTS PTY LTD ACN 112715 750 as trustee for Intertax Property Trust Number One, Intertax Property Trust Number Two, Intertax Property Trust Number Three, Intertax Property Trust Number Four, Intertax Property Trust Number Five, Intertax Property Trust Number Six, Intertax Property Trust Number Seven, Intertax Property Trust Number Eight, Intertax Property Trust Number Nine, Intertax Property Trust Number Ten, Intertax Property Trust Number Twenty, Intertax Property Trust Number Twenty One, Intertax Property Trust Number Twenty Five (second respondent – not a party to the application) INTERTAX FINANCIAL SERVICES INVESTMENTS PTY LTD ACN 112 715 796 as trustee for Intertax Property Fund (third respondent – not a party to the application) INTERTAX PTY LTD ACN 090 980 644 (fourth respondent – not a party to the application) INTERTAX FINANCIAL SERVICES PTY LTD ACN 104 285 734 (fifth respondent – not a party to the application) LIFELAND DEVELOPMENT PTY LTD ACN 117 228 618 as trustee for The Lifeland Development Trust (sixth respondent – not a party to the application) PARK DEVELOPMENTS PTY LTD ACN 117 227 755 as trustee for The Parkview Development Trust (seventh respondent – not a party to the application) QUEEN ELIZABETH DRIVE DEVELOPMENTS PTY LTD ACN 118 948 940 (eighth respondent – not a party to the application) RESERVE ROAD DEVELOPMENTS NO 2 PTY LTD ACN 118 900 913 (ninth respondent – not a party to the application) RIDLEY ROAD DEVELOPMENTS PTY LTD ACN 118 918 639 (tenth respondent – not a party to the application) WILLIS ROAD DEVELOPMENTS PTY LTD ACN 118 918 657 (eleventh respondent – not a party to the application) COWIE ROAD DEVELOPMENTS NO 2 PTY LTD ACN 118 900 922 (twelfth respondent – not a party to the application) BUCHANAN ROAD DEVELOPMENTS PTY LTD ACN 118 918 648 (thirteenth respondent – not a party to the application) EGGERSDORF ROAD DEVELOPMENTS PTY LTD ACN 117 195 712 formerly BUNYA ROAD DEVELOPMENTS PTY LTD (fourteenth respondent – not a party to the application) MOGGILL ROAD DEVELOPMENTS PTY LTD ACN 117 500 535 (fifteenth respondent – not a party to the application) BLACKWELL STREET DEVELOPMENTS PTY LTD ACN 119 015 691 (sixteenth respondent – not a party to the application) RESERVE ROAD DEVELOPMENTS PTY LTD ACN 117 135 092 (seventeenth respondent – not a party to the application) DAVID JEREMIAH PALMER formerly known as David John Lane (eighteenth respondent – not a party to the application) MAX DAVID COLLINS (nineteenth respondent) PHILIP JAMES TRUDGEON (twentieth respondent) |
FILE NO: | SC No 4719 of 2006 |
DIVISION: | Civil |
PROCEEDING: | Civil application |
ORIGINATING COURT: | Supreme Court |
DELIVERED EX TEMPORE ON: | 12 September 2006 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 12 September 2006 |
JUDGE: | Fryberg J |
ORDER: |
(a)Further promoting or operating the scheme or any other managed investment scheme that is required to be registered under s 601ED of the Corporations Act and is not registered; (b)Doing any act in furtherance of the scheme; and (c)Soliciting for, or receiving, any funds in connection with the scheme; (d)Disposing of, destroying, amending, altering, parting with possession of, removing from their present location, or causing, procuring, assisting or permitting to be disposed of, destroyed, amended, altered, possession parted with or removed from their present location all and any books, papers, records, books of account, ledgers, journals, banking records, computer records or other documents of any type whatsoever recording or evidencing any dealings of the first to twentieth respondents in relation to the scheme; (e)Issuing any interest, shares or units in connection with the scheme; (f)Removing from Australia or selling, charging, mortgaging, encumbering, securing, diminishing, disposing of, parting with possession, making any declaration of trust in relation to, exercising any power to vary or modify any trust or any interest under any trust in relation to or removing from their present locations all or any of the property; (g)Otherwise causing, procuring, assisting or permitting to be removed from Australia, sold, charged, mortgaged, encumbered, secured, diminished, disposed of or removed from their present locations, all or any of the property; (h)Dealing in any way, whether directly or indirectly, with any fund or monies standing to the credit of or under the control of the first to twentieth respondents in relation to the operation of the scheme whether located in or outside Australia; (i)Dealing in any way, either directly or indirectly, with any property, real or personal, acquired either wholly or partly with funds received as a result of the operation of the scheme whether located in or outside Australia;
|
CATCHWORDS: | Corporations – Management and administration – Duties and liabilities of officers of corporation – Offences – Contravention of provisions of the Corporations Act 2001 – Procedure – Penalty – Other matters – Winding up – Declaratory orders – Declaration of criminality – Criminal prosecutions may follow declarations – Declarations of criminality should not be made by a court sitting in civil jurisdiction Corporations – Management and administration – Duties and liabilities of officers of corporation – Offences – Contravention of provisions of the Act – Procedure –Mandatory and restraining injunctions – Discretion to grant injunction – Necessity for finding of future risk of offending – purpose of s 1324(7) Corporations Act 2001 Corporations Act 2001 (Cth), s 1324(7) Australian Softwood Forests Pty Ltd & ors v Attorney-General (NSW); Ex relatione Corporate Affairs Commission (1981) 148 CLR 121, distinguished Corporate Affairs Commissioner of New South Wales v Transphere Pty Ltd (1988) 15 NSWLR 596, discussed |
COUNSEL: | D J Campbell SC with E Longbottom for the applicant C D Coulsen for the nineteenth and twentieth respondents S C Fisher for the intervenors J & M Backhouse |
SOLICITORS: | Australian Securities and Investments Commission for the applicant Woods Hatchers Solicitors for the nineteenth and twentieth respondents Corney & Lind Lawyers for the intervenors |
HIS HONOUR: The proceedings before the Court are based on an originating application brought by the Australian Securities and Investments Commission, which I shall call ASIC, against Intertax Holdings Pty Ltd and 19 other respondents. The originating application sought the winding up of a managed scheme as defined in the application and the winding up of the companies involved in it, certain declarations in relation to a number of the respondents, and a number of orders regarding injunctions.
As regards the first to the 18th respondents I disposed of the matter by orders made on the 26th of August when I ordered that the scheme and the companies participating in it be wound up and issued injunctions against Mr Palmer, the main person involved in the scheme. Proceedings against the 19th and 20th respondents, Mr Collins and Mr Trudgeon, were adjourned until today by reason of late service of affidavits.
The matter has come on today and the position now is somewhat simpler. No question regarding winding up arises because the scheme has already been wound up. The relief which ASIC seeks against Mr Trudgeon and Mr Collins consists of three declarations regarding contraventions of s 601ED(5) of the Corporations (the Act) Act, s 911A of the Act and s 727 of the Act and orders in the form of mandatory and restraining injunctions against the 19th and 20th respondents - the first that they provide assistance to the liquidators and the second restraining them from further involvement in the scheme or any other unregistered scheme, (I am summarising a long list of orders).
Most of the hearing has been taken up with evidence designed to establish whether, in fact, the two respondents who are before me today - and I shall call them the respondents for simplicity - operated the scheme. That necessarily is involved if I were to make declarations that are sought. In the event, as things have turned out, it is not as central to the outcome of the case to make a determination on that issue as it seemed this morning. However, in deference to the way in which the matter has been conducted I think I should proceed to make findings on that question.
The scheme originally consisted of one large investment fund which in March 2005 was split into a number of funds which were said to be trusts. The particular trusts were allocated to specific projects and investors could nominate which project their funds should be directed toward. The scheme was operated mainly by Mr Palmer and there is no evidence that the present respondents were involved in it until November 2005. In fact, the money invested in the scheme was not maintained in separate bank accounts, but was mixed and it is dubious whether, despite representations to the contrary, actual trusts were established. There may, of course, have been constructive trusts, but that is not to the point at the present time.
The respondents had involvement with Mr Palmer prior to November 2005 by reason of involvement with a company Lifeland Pty Ltd. That was no part of the scheme. In November 2005 the position had been reached whereby Mr Trudgeon and Mr Collins were heavily indebted to Mr Palmer and his companies in a sum in the order of $2 million. A proposal was discussed among them for a new arrangement to be entered into. It involved the formation of two new companies, Lifeland Developments Pty Ltd and Park Developments Pty Ltd, which entities were going to carry out development projects financed by moneys invested in the scheme. The profits were to be shared by payment of those profits into scheme funds for the ultimate benefit of investors and also to benefit the respondents by reason of their use to pay off the debt which they owed to Mr Palmer and his companies. No actual money was ever transferred to either of these companies, but it is clear that their involvement was at a greater level than simply planning. Journal entries were made in their books which appeared to have been effective to create legal relationships between the companies and the other companies controlled by Mr Palmer.
A management agreement was entered into by each respondent on 1st November. It provided that Mr Palmer's company, Intertax Holdings Pty Ltd, or its assigned entities would establish the fund on behalf of Lifeland Development Pty Ltd in one case and Park Development Pty Ltd in the other, register the company and the trust pertaining to the fund, carry out liaison with investors, find, transfer or allocate investors to the fund, maintain all accounting records pertaining to the fund, establish a bank account for the fund, make monthly interest payments to investors, make capital repayments to investors, meet monthly to discuss the operation of the fund, maintain the investor register, issue monthly unit certificates signed by Lifeland Development and Park Development respectively and maintain investor files, maintain written correspondence and financial records, provide all statutory services and act with due care and attention to all legal statutory requirements.
In return Lifeland and Park agreed to exchange the existing debt which they and the respondents had with Intertax Holdings Pty Ltd for their profit entitlement to the extent of the fund's liability, to locate, acquire and finance and develop projects which would meet profit objectives, to market and sell those projects, to close the fund and repay all investors once sufficient projects were completed, to act with due care and attention to all statutory legal requirements.
Each of the respondents signed the respective agreements. In their evidence they went to great efforts to distance themselves from Mr Palmer. Essentially, they asserted that Mr Palmer did everything. They had no knowledge of what he did. They paid no attention to the books and records of their companies, notwithstanding that they were the sole shareholders and directors. They did not look at any documents which they signed, but simply allowed Mr Palmer's staff to prepare the documents which they signed because they were asked to. I regret to say that I do not believe them.
It seems plain to me that the documents which were signed could not have been signed with the level of ignorance which they profess. They were signed over a period of time (I have in mind in particular the unit certificates) and they mak plain on their face what they are. Mr Trudgeon went so far as to assert that on at least one occasion a document which he signed was covered up by Mr Palmer. I cannot believe that a businessman of Mr Trudgeon's experience would permit such a thing to happen.
The evidence shows that a schedule of investors was created in respect of the operations involving the two companies and the respondents swore that the respective schedules were true copies of a schedule of investors for their respective companies. Mr Collins sought to resile from the word "true" in his affidavit when he realised the significance of the schedule and Mr Trudgeon asserted that in his case the schedule had been created by others and he simply could not vouch for its accuracy.
The fact is that these schedules clearly show the involvement of these companies in the scheme by reason of the references to a variety of destinations for the money and I think it was Mr Trudgeon who admitted that Mr Palmer was all the time rolling over people into these funds.
Mr Collins had contact with the investors as he himself said in an earlier examination. Although he now wishes to deny that fact, I do not believe him.
I am quite satisfied that in each case, the respondents at least did not care what they signed and were quite willing to do whatever Mr Palmer asked them to further the scheme in the hope of paying off the debt which they owed. Quite likely, it was more than simply blind signing.
For these reasons, I am satisfied that their involvement was sufficiently substantial to find that they operated the scheme within the meaning of section 601ED(5) of the Corporations Act. I reject Mr Coulsen's submission that someone who does not play an integral part in the overall or whole management of the scheme does not operate the scheme.
In the end, it is not, I think, necessary for me to make that definitive finding, because its necessity arises only were I prepared to make declarations of the type sought by paragraphs (1), (2) and (3) of the originating application. I am not prepared, in the circumstances of this case, to make such declarations.
I acknowledge immediately that there is a jurisdiction to makea declaration in association with the winding up of a scheme, and that there may be many cases in which such a declaration is appropriate. Examples of cases in which this has been done and in which the declarations have been made are set out in the judgment of Davies AJ in Australian Securities and Investments Commission v. Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at page 571. They are also noted by Atkinson J in ASIC v. Atlantic 3 Financial (Aust) Pty Ltd and Ors [2006] QSC 132 at paragraph 52, note 5.
Those two cases do not seem to give detailed consideration to the background of declarations, but that is not true of the decision of Young J, which they cite, that decision being Corporate Affairs Commission of New South Wales v. Transphere Pty Ltd (1988) 15 NSWLR 596. At page 603, his Honour said:
"The authorities show the types of situations in which Courts will consider it appropriate to exercise the power to make a declaration and it seems to me that so far as the present case is concerned, the following propositions must be borne in mind. Ordinarily a declaration is not made that the defendant has committed a crime. There is no doubt at all that there is jurisdiction to make such a declaration in a proper case, but ordinarily the criminal courts are the proper forum for such questions. It has, however, been recognised that there will be situations where despite the fact that a penal law is involved, it will be appropriate for 'Her Majesty's subjects to ascertain by an authoritative pronouncement the precise meaning of the law they are called upon to obey.' Accordingly, it is appropriate in many cases for a business person who is told by the regulatory authority of a particular industry that he or she cannot do something to apply for a declaration that that view is erroneous. Because the business person can do it, it has been assumed the right is mutual so the Crown can also obtain a declaration that the business person's conduct does contravene the law. That practice, which was common in New South Wales, has been given the seal of approval by the High Court in Australian Softwood Forests Pty Ltd v. Attorney-General for New South Wales (1981) 148 CLR 121."
With the exception of the last case, I have refrained from inserting the citations which his Honour has given for a number of things which he said. I do not disagree with most of that passage, although I would not, myself, comment on what might be the New South Wales practice. There is, however, one exception to my concurrence: that is that I do not read the decision of the High Court as giving the seal of approval to what his Honour describes as the common practice in New South Wales if, by that, his Honour means that it has become a common practice for the Crown to obtain a declaration that a person's conduct contravenes the law in circumstances where the contravention constitutes an offence. The approval given by the High Court in Australian Softwood Forests was to the proposition that a declaration could be granted notwithstanding that an injunction would not be granted. That is not the issue in the present case.
His Honour also pointed out that where there is a genuine belief that conduct is not in breach of a law or an order of a Court, it is often inappropriate to launch a prosecution and, instead, the Court encourages an application for declaratory relief. That does not assist ASIC in the present case. ASIC has expressly refused to give any undertaking that a prosecution will not follow. It seems to me that this is a case where the ordinary position described by Young J ought to apply. It might be otherwise if it were clear that there would be no prosecution. Where the possibility of a prosecution is open, it would, in my judgment, be contrary to the ordinary practice for the authority of this Court to be given to a declaration which, in substance, amounted to a declaration that a defendant had committed a crime. One should not make a declaration which might be falsified by a subsequent acquittal in proceedings between the same parties.
Therefore I have come to the conclusion that notwithstanding my finding on the facts, I am not prepared to make the declarations sought in paragraphs (1), (2) and (3) of the originating application.
The position is rather different in relation to the orders by way of mandatory and restraining injunction. Even if I be wrong about my finding that the respondents have operated the scheme, there can, I think on the evidence, be no doubt that within the meaning of section 1324(1) of the Act, they have aided Mr Palmer to contravene the Act. They sought, in their evidence, to convince me that they knew nothing of what Mr Palmer was doing, but I cannot believe that they could have been doing what they were doing over the period of time that they did it without having a shrewd idea of what was happening. It is open to me to make the orders sought in paragraphs 4, 5 and 6 of the draft which has been provided to me by counsel for ASIC.
The order in paragraph 4 is not consented to, but is not opposed by the respondents. The order in paragraph 5 is opposed on the ground that it lacks utility. I was attracted to that argument at first, but my attention has been drawn to section 1324(7) of the Corporations Act, and that, in my judgment, makes it clear that an injunction may issue whether or not it appears that there is any future risk of re-offending or repeating the offending conduct. The discretion to grant the injunction is enlivened when a person has engaged in conduct which would constitute aiding another to contravene the Act, and I am satisfied that one way or another, that is what the respondents have done. In the light of the statutory provisions it is not necessary to find a risk of future re- offending, and I make no such finding in the present case. The section is designed to allow an injunction to be granted purely as a precautionary measure in order to ensure that someone who has misbehaved once does not do so again, regardless of the risk of its happening.
I am, therefore, prepared to make orders in terms of paragraphs 4, 5 and 6 of the draft which has been provided to me.
...
HIS HONOUR: It seems to me that today's hearing has been made necessary by the opposition of the 19th and 20th respondents. They have contested the injunction in paragraph 5 of the draft and paragraph 6 and have contested the question of their involvement in operating the scheme. They have been successful, it is true, in opposing the declarations which ASIC sought, but the vast bulk of today's hearing has been taken up hearing evidence and deciding questions of fact on which their evidence has not been accepted. In these circumstances, they should, I think, pay ASIC's costs of today's proceedings.
The orders I propose in respect of costs are these: paragraph (4) in the draft; "Subject to paragraph (5), the applicant's costs and those of the intervenors, J and M Backhouse, of the originating application, and the application seeking interlocutory relief filed 6 June 2006, including any reserved costs, be costs in the winding up of the scheme and of the 1st to 17th respondents. (5) The 19th and 20th respondents pay ASIC's costs incurred in respect of today's hearing to be assessed."
MR CAMPBELL: Thank you, your Honour.