Australian Securities and Investments Commission v Varsity Lodge Pty Ltd
[2007] QSC 376
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- Australian Securities and Investments Commission v Varsity Lodge Pty Ltd[2007] QSC 376
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Australian Securities and Investments Commission v Varsity Lodge Pty Ltd[2007] QSC 376
Australian Securities and Investments Commission v Varsity Lodge Pty Ltd[2007] QSC 376
SUPREME COURT OF QUEENSLAND
CITATION: | Australian Securities and Investments Commission v Varsity Lodge P/L & Ors; Australian Securities and Investments Commission v Jacaranda Properties Australia P/L & Ors [2007] QSC 376 |
PARTIES: | AusTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v VARSITY LODGE PTY LTD ACN 104 129 099 (first respondent) VARSITY LODGE IPSWICH PTY LTD ACN 108 330 196 (second respondent) ROBERT THOMAS ADCOCK (third respondent) COLIN GRAHAM FRANCIS (fourth respondent) LIFECARE SERVICES AUSTRALIA PTY LTD ACN 012 326 081 (fifth respondent) SILTRA PTY LTD ACN 096 734 208 (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 105 098 824 (first respondent) KALLANGUR MEWS PTY LTD ACN 105 908 842 (second respondent) LIFECARE SERVICES AUSTRALIA PTY LTD ACN 102 326 081 (third respondent) DAVID JOSEPH STOYAKOVICH (fourth respondent) ROBERT THOMAS ADCOCK (fifth respondent) COLIN GRAHAM FRANCIS (sixth respondent) KALLANGUR MEWS UNIT TRUST (TRUSTEE) (seventh respondent) |
FILE NO: | SC No 6764 of 2006; SC No 6771 of 2006 |
DIVISION: | Trial |
PROCEEDING: | Civil Application |
ORIGINATING COURT: | Supreme Court |
DELIVERED ON: | 29 November 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 29 November 2007 |
JUDGE: | Fryberg J |
ORDER: | As in Annexure A and Annexure B |
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 sought – Declaration of contravention of legislation – Exercise of judicial discretion – Respondents agree to abide by orders of the court – Declaration made Corporations Act 2001 (Cth) s 601, s 601EE, s 911A Australian Securities and Investments Commission v Fuelbanc Australia Limited [2007] FCA 960 discussed Australian Securities and Investments Commission v Intertax Holdings Proprietary Limited and Ors [2006] QSC 276 distinguished Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 cited |
COUNSEL: | Applicant: R Derrington SC and M Luchich Respondents: No appearance |
SOLICITORS: | Applicant: Direct brief by Australian Securities and Investment Commission Respondents: No appearance |
SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION
[2007] QSC 376
FRYBERG J
No 6764 of 2006
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Applicant |
and
|
|
VARSITY LODGE PTY LTD (ACN 104 129 099)
and
VARSITY LODGE IPSWICH PTY LTD (ACN 108 330 196)
and
ROBERT THOMAS ADCOCK
and
COLIN GRAHAM FRANCIS
and
LIFECARE SERVICES AUSTRALIA PTY LTD (ACN 012 326 081)
and
SILTRA PTY LTD (ACN 096 734 208)
and
DAVID JOSEPH STOYAKOVICH
and
VARSITY LODGE IPSWICH UNIT INVESTMENT TRUST (TRUSTEE)
No 6771 of 2006
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
and
JACARANDA PROPERTIES AUSTRALIA PTY LTD (ACN 105 098 824)
and
KALLANGUR MEWS PTY LTD (ACN 105 908 842)
and
LIFECARE SERVICES AUSTRALIA PTY LTD (ACN 102 326 081)
and
DAVID JOSEPH STOYAKOVICH
and
ROBERT THOMAS ADCOCK
and
COLIN GRAHAM FRANCIS
and
KALLANGUR MEWS UNIT TRUST (TRUSTEE)
|
Respondents
Applicant
Respondents |
BRISBANE
..DATE 29/11/2007
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 601EE of the Corporations Act.
They have been before the Court since December 2006 and 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.
...
HIS HONOUR: Yesterday notices in each action were served on ASIC that the respondents were no longer represented and 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 and 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 and 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 601(e)(d)(5) of the Corporations Act, and that they have contravened Section 911A 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 evidence to the public that the community would not tolerate the sort of behaviour indulged in by the respondents and 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 and Investments Commission v Inter-Tax Holdings Proprietary Limited and Others [2006] QSC 276. In that case the relevant respondents were represented and 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, and 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 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 and Investments Commission v Fuel Bank Australia Limited [2007] FCA 960.
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 and, 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 and I am indebted to Mr Derrington for his analysis and assistance in relation to it.
His Honour examined the statutory basis of the Federal Court's jurisdiction to make declarations and 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 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 (1978) 142 CLR 1.
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 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.
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 and 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.
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.
On the other hand, there is an important distinction between the present case and Intertax. In Intertax, the orders sought were opposed. In the present case, they are not opposed.
On 19 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, and that the respondents would be seeking to agree consent orders with ASIC, and 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 and 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 Heery J, Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Limited [1921] 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 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 and 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 and 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 and 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.
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 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 and are rather elliptical in their recitation of the elements of the section.
I understand Mr Derrington proposes to redraft them and subject to that redrafting I am content to make orders in accordance with the drafts.
‑‑‑‑‑
ANNEXURE A
SUPREME COURT OF QUEENSLAND
Registry: Brisbane
Number: BS 6764 of 2006
IN THE MATTER OF VARSITY LODGE PTY LTD ACN 104 129 099 AND OTHERS
Applicant:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
and
First Respondent:VARSITY LODGE PTY LTD ACN 104 129 099
and
Second Respondent:VARSITY LODGE IPSWICH PTY LTD ACN 108 330 196
as trustee for the Varsity Lodge Ipswich Unit Investment Trust
and
Third Respondent:LIFECARE SERVICES AUSTRALIA PTY LTD ACN 102 326 081
and
Fourth Respondent:ROBERT THOMAS ADCOCK
and
Fifth Respondent:COLIN GRAHAM FRANCIS
and
Sixth Respondent:DAVID JOSEPH STOYAKOVICH
and
Seventh Respondent:SILTRA PTY LTD ACN 096 734 208
ORDER
Before:Fryberg J.
Date: 29 November 2007
Initiating document:Amended Originating Application filed 7 December 2006
THE ORDER OF THE COURT IS THAT –
- For the purposes of this order:-
- the term “the Varsity Lodge Scheme” means the managed investment scheme operated by the First to Sixth Respondents involving property developments at:
- Varsity Lodge, 6 Thorn Street Ipswich, (Lot 1 on Registered Plan 74962, County of Stanley, Parish of Ipswich. Lot No 2 on Registered Plan No 100686, County of Stanley, Parish of Ipswich and Lot 6 on Registered Plan 223783, County of Stanley, Parish of Ipswich) in the State of Queensland (“the Varsity Lodge Property”); and
- Wahroonga Manors, 16 Stephenson Street, Sadliers Crossing, Queensland (Lot 3 Registered Plan 23939, County of Stanley, Parish of Ipswich, and Lot 4 Registered Plan 23940, County of Stanley, Parish of Ipswich) in the State of Queensland (“the Wahroonga Manors Property”).
- the term “the Varsity Lodge Scheme” means the managed investment scheme operated by the First to Sixth Respondents involving property developments at:
IT IS DECLARED THAT:
- In the period from 1 January 2004 until 13 September 2006 each of the First, Second, Third, Fourth, Fifth and Sixth Respondents in contravention of section 601ED(5) of the Corporations Act 2001 (Cth)(“the Act”) operated a managed investment scheme, being the Varsity Lodge Scheme, which scheme was not registered in accordance s.601ED(1) of the Act.
- In the period from 30 March 2004 until 21 June 2004 each of the First, Second, Third, Fourth, Fifth and Sixth Respondents in contravention of section 911A of the Act carried on a financial services business without holding an Australian Financial Services Licence.
IT IS ORDERED THAT:
- The Varsity Lodge Scheme be wound up pursuant to s.601EE of the Act.
- Justin Dennis Walsh of Ernst & Young (“the Liquidator”) be appointed to wind up the Varsity Lodge Scheme and be appointed Trustee of the Varsity Lodge Ipswich Unit Investment Trust in place of the Second Respondent.
- 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 which will apply mutatis mutandis as if the Varsity Lodge Scheme were a company, save for any powers in relation to share capital.
- 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 and 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 2007.
- Without limiting the generality of paragraph 8 of this order, each of the Respondents deliver up to the Liquidator all books, records and documents of any sort in their possession, power or control relating to:
- the contract dated 6 April 2004 between the Seventh Respondent and the Second Respondent for the sale of the Wahroonga Manors Property or any other contract, agreement, arrangement or transaction between the Seventh Respondent and any of the Respondents in relation to the Wahroonga Manors Property;
- the transfer of registered mortgage dealing number 706920151 over the Wahroonga Manors Property;
- the creation of registered mortgage dealing number 711042062 over the Wahroonga Manors Property;
- the transfer of title in the Wahroonga Manors Property to Wahroonga Mews Pty Ltd ACN 125 883 455.
- The Liquidator be entitled to receive fair and 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 and all reasonable out of pocket expenses, such remuneration and 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:
- Receives approval from two thirds in value of the investors in the Varsity Lodge Ipswich Unit Investment Trust; or
- If a committee of investors has been appointed, obtains approval from the committee of investors; or
- 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.
- 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.
- Each of the First to Sixth Respondents, by themselves, their servants, agents and employees, be permanently restrained from promoting or operating the Varsity Lodge Scheme or any other unregistered managed investment scheme in contravention of section 601ED(5) of the Act.
- Each of the First to Sixth Respondents, by themselves, their servants, agents and employees be permanently restrained from dealing in financial products or carrying on a financial services business, including, without limitation, by the promotion and conduct of the Varsity Lodge Scheme.
- Each of the parties, the investors and the Liquidator have liberty to apply.
- The Seventh Respondent pay the Applicant's reserved costs of the application for an interlocutory injunction heard on 13 September 2006.
- The First to Sixth Respondents pay the Applicant’s costs of and incidental to these proceedings (including reserved costs except for the costs referred to in paragraph 17 above) to be assessed on the standard basis.
ANNEXURE B
SUPREME COURT OF QUEENSLAND
Registry: Brisbane
Number: BS 6771 of 2006
IN THE MATTER OF JACARANDA PROPERTIES AUSTRALIA PTY LTD ACN 105 098 824AND OTHERS
Applicant:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
and
First Respondent:JACARANDA PROPERTIES AUSTRALIA PTY LTD
ACN 105 098 824
and
Second Respondent:KALLANGUR MEWS PTY LTD ACN 105 098 842
as trustee for the Kallangur Mews Unit Trust
and
Third Respondent:LIFECARE SERVICES AUSTRALIA PTY LTD
ACN 102 326 081
and
Fourth Respondent:ROBERT THOMAS ADCOCK
and
Fifth Respondent:COLIN GRAHAM FRANCIS
and
Sixth Respondent:DAVID JOSEPH STOYAKOVICH
ORDER
Before:Fryberg J.
Date:29 November 2007
Initiating Document: Amended Originating Application filed 7 December 2006
THE ORDER OF THE COURT IS THAT –
- For the purposes of this order:-
- 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 1 on Registered Plan 85620, County of Stanley, Parish of Redcliffe) in the State of Queensland ("the Kallangur Mews property").
IT IS DECLARED THAT:
- In the period from 1 August 2004 until 13 September 2006 each of the First, Second, Third, Fourth, Fifth and Sixth Respondents in contravention of section 601ED(5) of the Corporations Act 2001 (Cth)(“the Act”) operated a managed investment scheme, being the Kallangur Mews Scheme which scheme was not registered in accordance s.601ED(1) of the Act.
- In the period from 2 August 2004 until 2 November 2004 each of the First, Second, Third, Fourth, Fifth and Sixth Respondents in contravention of section 911A of the Act carried on a financial services business without holding an Australian Financial Services Licence.
IT IS ORDERED THAT:
- The Kallangur Mews Scheme be wound up pursuant to s.601EE of the Act.
- Justin Dennis Walsh of Ernst & Young (“the Liquidator”) be appointed to wind up the Kallangur Mews Scheme and be appointed Trustee of the Kallangur Mews Unit Trust in place of the Second Respondent.
- 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 mutandis as if the Kallangur Mews Scheme were a company, save for any powers in relation to share capital.
- 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 and 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 Kallangur Mews Scheme on or before 4pm on 5 December 2007.
- The Liquidator be entitled to receive fair and 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 and all reasonable out of pocket expenses, such remuneration and 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:
- Receives approval from two thirds in value of the investors in the Kallangur Mews Unit Trust; or
- If a committee of investors has been appointed, obtains approval from the committee of investors; or
- 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.
- 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.
- Each of the First to Sixth Respondents, by themselves, their servants, agents and employees, be permanently restrained from promoting or operating the Kallangur Mews Scheme or any other unregistered managed investment scheme in contravention of section 601ED(5) of the Act.
- Each of the First to Sixth Respondents, by themselves, their servants, agents and employees be permanently restrained from dealing in financial products or carrying on a financial services business, including, without limitation, by the promotion and conduct of the Kallangur Mews Scheme.
- Each of the parties, the investors and the Liquidator have liberty to apply.
- The Respondents pay the Applicant’s costs of and incidental to these proceedings (including reserved costs) to be assessed on the standard basis.