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Re: Risqy Limited (No 2)[2008] QSC 139

Re: Risqy Limited (No 2)[2008] QSC 139

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

26 June 2008

DELIVERED AT:

Brisbane 

HEARING DATE:

4 June 2008

JUDGE:

Daubney J

ORDER:

For the purpose of this order:

‘Investor’ means a person or entity who has contributed moneys in respect of the Scheme.

‘Property’ means all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of section 1323(2A) of the Corporations Act 2001 (Cth) (‘the Act’), any property held otherwise than as sole beneficial owner.

‘The Scheme’ means arrangements whereby investors contributed money to be traded on international markets, which money was deposited (directly or indirectly) into bank accounts held with the Bank of New Zealand BSB 20100 account numbers F672029-0000, and F672029-0001 in the name of the First Respondent and transferred to an account or accounts, including an account with the Bank of New Zealand BSB 20100 account number F672029-0002 in the name of the First Respondent, an account in the name of the First Respondent with Open E Cry LLC in the United States of America and an account held with the HSBC bank in Hong Kong account number 503-167785-853 in the name of the Fourth Respondent.

THE COURT DECLARES THAT:

1.In contravention of section 601ED(5) of the Act, during the period January 2006 to |30 November 2006 the Second Respondent operated the Scheme which, by the Order of this Honourable Court dated 29 February 2008, was declared to be a managed investment scheme which was required to be registered under s 601EB of the Act and was not so registered.

2.In contravention of section 911A of the Act, during the period January 2006 to 30 November 2006 the Second Respondent carried on a financial services business namely, the business of dealing with the interests held by Investors in the Scheme, without holding an Australian financial services licence covering the provision of those financial services.

3.In contravention of section 1012B of the Act, during the period January 2006 to 30 November 2006 the Second Respondent arranged for the issue of financial products namely, the interest held by Investors in the Scheme, without giving a Product Disclosure Statement for those financial products.

AND THE COURT ORDERS THAT:

4.The Second Respondent (by himself, his servants or agents or otherwise howsoever) be restrained from:

(a)transferring, encumbering, or in any other way disposing of or dealing with, whether directly or indirectly, any property of the Scheme, or causing or permitting any property of the Scheme to be transferred, encumbered, or in any other way disposed of or dealt with, either directly or indirectly;

(b)transferring, encumbering, or in any other way disposing of or dealing with, whether directly or indirectly, any property acquired wholly or partly with funds received in consequence of the operation of the Scheme, or causing or permitting any such property to be transferred, encumbered, or in any other way disposed of or dealt with, either directly or indirectly.

5.The Second Respondent pay the Applicant’s costs of and incidental to this Application to be assessed on the standard basis.

6.The Second Respondent have liberty to apply to discharge or vary Order 4 on five (5) days written notice to the Applicant.

CATCHWORDS:

CORPORATIONS – MANAGED INVESTMENTS – REGISTRATION OF SCHEME – where the court previously determined that the First Respondent operated a managed investment scheme (‘the Scheme’) that the Corporations Act 2001(Cth) (‘the Act’) required to be registered and was not so registered – where the Second Respondent is the sole director of the First Respondent, was a signatory of the First Respondent’s bank accounts and undertook trading activities on behalf of the First Respondent – whether the Second Respondent ‘operated’ the Scheme of the First Respondent

CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL SERVICES PROVIDERS – LICENSING AND REGULATION – where the applicant contends that the Second Respondent carried on a financial services business without holding an Australian financial services licence covering the provision of the financial services – whether an interest in the Scheme constituted a ‘financial product’ for the purposes of Ch 7 of the Act – whether the Second Respondent, as sole director of the First Respondent, issued or arranged to issue, grant or otherwise make available financial products

CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL SERVICES PROVIDERS – DISCLOSURE – where the Second Respondent is a ‘regulated person’ within the meaning of s 1011B of the Act – whether the Second Respondent contravened s 1012B of the Act by issuing or arranging for the issue of interests in the Scheme without giving a product disclosure statement

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – JURISDICTION AND AVAILABILITY OF THE REMEDY GENERALLY – where Second Respondent fails to appear – where no evidence available as to whether the Second Respondent holds any property of the Scheme – where Liquidators of the Scheme are immediately entitled to possession of any such property – where there is a significant shortfall in the Scheme’s assets relative to creditor’s claims – whether an injunction to restrain the Second Respondent from dealing with property of the Scheme should be granted

ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561

Re McDougall (2006) 57 ACSR 175

Re: Risqy Limited [2008] QSC 107

Corporations Act 2001(Cth)

Uniform Civil Procedure Rules 1999 (Qld)

COUNSEL:

GJ Gibson QC with C Conway for the applicant

SOLICITORS:

ASIC in-house solicitor for the applicant

No appearance by the second respondent

  1. On 29 February 2008, I made a declaration, for the reasons I gave on that day[1],  to the effect that, in contravention of s 601ED of the Corporations Act (‘the Act’), the managed investment scheme operated by Risqy Ltd was required to be, but was not, registered under s 601EB of the Act.  I consequently ordered that the scheme be wound up, and appointed liquidators for that purpose.
  1. At the risk of repetition, it is appropriate to set out again my findings in relation to the way in which the scheme operated:

(a)From January to November 2006 some 266 investors (whose identities are disclosed in the material) deposited amounts of money totalling $14,446,834.19 into Risqy’s accounts with the Bank of New Zealand (‘BNZ accounts’).

(b)Some of those funds were transferred from Risqy’s BNZ accounts to other accounts including the so-called ‘OEC account’ (more properly described as an Open E’Cry account) which was held in the United States of America.  This was to enable Risqy to trade in foreign exchange trading and in futures markets which, it was said by Risqy, would enable investors to receive a fixed rate of interest on their money of 4.23 per cent per month.

(c)Investors received a monthly email and spreadsheet from Risqy’s account managers (who are identified in the material) which purported to inform them of the return earned by that investor for the previous month.

(d)Risqy applied the funds deposited at its own discretion.

(e)No investors were signatories either to the BNZ accounts or to the OEC account or, for that matter, to any other accounts operated by Risqy.

  1. The Australian Securities and Investments Commission (‘ASIC’) now seeks final relief against the second respondent, Leslie George Whitford, who was at all material times a director of Risqy. ASIC seeks declarations that Mr Whitford operated the scheme in contravention of s 601ED(5) of the Act, that he carried on a financial services business in contravention of s 911A of the Act, and that he arranged for the issue of financial products in contravention of s 1012B of the Act, and also seeks an injunction to restrain Mr Whitford from transferring or dealing with any property of the scheme. These orders are all encompassed within the relief sought in ASIC’s application and articulated in the points of claim which have been delivered by ASIC by way of pleadings. Moreover, an interlocutory application specifying precisely the relief sought has been filed. The material before me discloses that, consequent upon a previous order being made for substituted service, Mr Whitford has been properly served with all of the material relating to ASIC’s application, including the current application. Mr Whitford has not filed a defence to ASIC’s proceeding no has he appeared to oppose this application. Accordingly, ASIC seeks judgment pursuant to UCPR r 288.
  1. In relation to the contention that Mr Whitford contravened s 601ED of the Act,
    s 601ED(5) provides:

‘A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under s 601EB unless the scheme is so registered.’

  1. For the reasons delivered by me on 29 February 2008, I am of the view that the scheme operated by Risqy was a managed investment scheme which s 601ED required to be registered under s 601EB. The question, then, is whether Mr Whitford operated that scheme. I repeat my previous observations that the conduct prohibited by s 601ED(5) is the operation of the scheme in this jurisdiction, that no technical gloss needs to be given to the word ‘operate’ in this context, and that it is an ordinary word which carries its ordinary meaning.
  1. I am fortified in that view by referring to the judgment of Davies AJ in
    ASIC v Pegasus Leveraged Options Group Pty Ltd[2], in which his Honour noted at 574:

‘[55]The word ‘operate’ is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance.  The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme.’

See also Re McDougall[3].

  1. The material before me discloses that Mr Whitford undertook the following activities on behalf of Risqy in relation to the scheme namely:

(a)Mr Whitford was a signatory to the bank accounts of Risqy;

(b)Mr Whitford was a director of Risqy;

(c)It was Mr Whitford who undertook the foreign exchange and futures trading on behalf of Risqy.

  1. It will be apparent from the brief overview I have set out above of the way in which the scheme operated that a central element of the scheme was the diversion of funds from Risqy’s Australian accounts to offshore accounts and the use of those funds in foreign exchange and futures market trading. As Mr Whitford was the real person who undertook those activities for Risqy, it follows, in my view, that it can properly be said that Mr Whitford ‘operated’ Risqy’s scheme. Accordingly, Mr Whitford’s operation of that scheme was, in the circumstances, in contravention of s 601ED(5) of the Act.
  1. ASIC also seeks a declaration of contravention by Mr Whitford of s 911A of the Act. Section 911A(1) provides:

‘Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.’

  1. It is clear that Mr Whitford’s situation is not exempted from the operation of that subsection by the following subsections of s 911A. In order to be satisfied that Mr Whitford’s conduct contravened this provision, it is necessary to refer, albeit briefly, to a number of other definitions in the Act.
  1. The term ‘financial services business’ is defined for the purposes of Chapter 7 of the Act in s 761A to mean ‘a business of providing financial services’. That definition elicits two questions:

-what are ‘financial services’?, and

-what is meant by ‘providing’ financial services?

  1. As to the first of these questions, s 766A(1)(b) relevantly provides that, for the purposes of Chapter 7, ‘a person provides a “financial service” if they ... deal in a financial product (see s 766C)’. 
  1. Section 763A contains a general definition of the term ‘financial product’ for the purposes of Chapter 7, but s 764A goes on to enumerate specific things that are financial products. Relevant for present purposes is the inclusion in the term ‘financial products’, by s 764A(1)(ba), of:

‘any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:

 

(i)An interest in the scheme;

 

(ii)A legal or equitable right or interest in an interest covered by subparagraph (i);

 

(iii)An option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);’

  1. The managed investment scheme in this case was not a registered scheme. As appears from my previous reasons for judgment, the material before me also discloses that the scheme had many more than 20 members. Accordingly, this was an unregistered managed investment scheme in relation to which s 601ED(1)(a) was satisfied. It is not a scheme ‘in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied’. This scheme therefore does not fall under the exclusion contained within s 764A(1)(ba), and hence an interest in this scheme constituted ‘financial products’ for the purposes of Chapter 7 of the Act.
  1. Section 766C(1)(b) relevantly provides that, for the purposes of Chapter 7, ‘issuing a financial product constitutes “dealing” in a financial product’.
  1. The meaning of ‘issuing a financial product’ is explained in s 761E which provides, inter alia, as follows:

‘(1)General  This section defines when a financial product is “issued” to a person.  It also defines who the “issuer” of a financial product is.  If a financial product is issued to a person:

 

(a)the person “acquires” the product from the issuer;  and

(b)the issuer “provides” the product to the person.

 

Note:  Some financial products can also be acquired from or provided by, someone other than the issuer (eg on secondary trading in fiancnial products)

 

(2)Issuing a financial product  Subject to this section, a financial product is “issued” to a person when it is first issued, granted or otherwise made available to a person.’

  1. ASIC submits that it should be found that Mr Whitford, within the meanings of these definitions, issued or arranged to issue, grant or otherwise make available financial products (being interests in this particular unregistered managed investment scheme) because he:

(a)Was a director of Risqy, which was the corporate vehicle for operating the scheme;

(b)Was a signatory on Risqy’s and the scheme’s bank accounts, and

(c)Undertook all of the foreign exchange and futures trading on behalf of Risqy and for the scheme.

  1. In Re McDougall[4], Young J had before him an application by ASIC for, amongst other things, a declaration that the sole director of a company which had carried on an offending unregistered managed investment scheme had contravened s 911A by carrying on a financial services business without holding the necessary licence.  His Honour found, on the evidence before him in that case, that this director ‘was the person who formulated and directed the scheme, and he was the directing mind and will of [the corporate scheme operator] in its day to day operations in relation to the scheme’.[5]  In relation to the allegation that the director had contravened s 911A, his Honour said:

‘[50]I consider that McDougall, as the sole director and controller of BTS and as one of the registered owners of the business name Chargeitcards, was also carrying on an unlicenced financial services business in contravention of s 911A(1).  Further, and in any event, McDougall was acting as a representative of BTS in offering and promoting memberships in the scheme.  As such, McDougall was only exempt from the requirement that he hold an Australian financial services licence if BTS itself held such a licence, and it did not.

 

[51]Numerous cases have held that s 911A of the Act extends to a company director who conducts or is involved in a company’s carrying on of a financial services business without an Australian financial services licence:  see Australian Securities and Investments Commission v Giann & Giann Pty Ltd (2005) 141 FCR 278;  23 ACLC 45;  [2005] FCA 81;  Australian Securities and Investments Commission v Manito Pty Ltd (2005) 53 ACSR 56;  [2005] FCA 386;  Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 068.

 

[52]In all the circumstances, I am satisfied that MTS and McDougall each contravened the provisions of s 911A by carrying on a financial services business without holding an Australian financial services licence covering the provision of financial services under, or in connection with, the scheme.’

  1. The evidence discloses that neither Risqy nor Mr Whitford held an Australian financial services licence.
  1. For the reasons stated above, I have found that Mr Whitford operated the scheme. It seems to me, in the circumstances, that it can also properly be said that Mr Whitford’s conduct of and involvement in Risqy’s carrying on of the financial services business, which was constituted by the issuing of interests in this particular scheme, was such as to lead to the conclusion that Mr Whitford was carrying on a financial services business without holding an Australian financial services licence covering the provision of financial services under, or in connection with, the scheme, and thereby contravened s 911A(1).
  1. My conclusion that Mr Whitford’s involvement amounted to carrying on a financial business is sourced in the factors identified by ASIC, particularly the fact that it was Mr Whitford who undertook the central business of the scheme, namely the foreign exchange and futures trading. This is reinforced by the terms of a document entitled “New Investor Information” which numerous of the investors depose to having received from Risqy (or its agents) at, or prior to, the time of their investments. That document stated, inter alia:

“New Investor Information

Investment Company Risqy Limited

(Risqy – name of company for wealth and prosperity)

Les Whitford and Elizabeth Lacey joint owners

Les Whitford:Invests all capital
Elizabeth Lacey:Administration

Les Whitford has been trading successfully for a number of years. As it requires large sums of money Elizabeth Lacey suggested combining a number of smaller investors togive them an opportunity to take advantage of what can be accomplished in this lucrative market.”

  1. The finding that Mr Whitford was a person who was required to, but did not hold an Australian financial services licence means also that he is a ‘regulated person’ within the meaning of that term in s 1011B of the Act. Part 7.9 Division 2 subdivision (b) sets out the circumstances in which a Product Disclosure Statement (as that term is defined in s 761A) is required to be given by a regulated person. The statutory requirements for the preparation and content of Product Disclosure Statements are contained in Part 7.9 Division 2 subdivision (c) of the Act.
  1. Section 1012B(3) provides:

‘(3)The main issue situations  A regulated person must give a person a Product Disclosure Statement for a financial product if:

 

(a)the regulated person:

 

(i)offers to issue the financial product to the person;  or

(ii)offers to arrange for the issue of the financial product to the person;  or

(iii)issues the financial product to the person in circumstances in which there are reasonable grounds to believe that the person has  not been given a Product Disclosure Statement for the product;  and

 

(b)the financial product is, or is to be, issued to the person as a retail client.

 

The Product Disclosure statement must be given at or before the time when the regulated person makes the offer, or issues the financial product, to the person and must be given in accordance with this Division.

 

Note:  If a Product Disclosure Statement is given when the offer is made, it will not need to be given again when the product is issued to the person (see subsection 1012D(1)) unless the Product Disclosure Statement that was given is no longer up to date.’

  1. It is apparent from the material before me that no Product Disclosure Statements were issued to any of the investors in the scheme. For the purposes of s 1012B(3)(a) and (b), ASIC has the benefit of the presumptions contained in s 761G concerning the meaning of ‘retail client’. In particular, that section provides:

‘(1)Providing a financial product of financial service to a person as a retail client  For the purposes of this Chapter, a financial product or a financial service is provided to a person as a “retail client” unless subsection (5), (6) or (7) provides otherwise.

 

Note:  The references in this section to providing a financial product to a person are not to be taken to imply that the provision of a financial product is not also the provision of a financial service (see the meaning of “dealing” in section 766C).

...

 

(9)Other proceedings relating to subsection (7) products – presumption in non-criminal proceedings of retail client unless contrary established  If:

 

(a)it is alleged in a proceeding under this Chapter (not being a prosecution for an offence), or in any other proceeding (not being a prosecution for an offence) in respect of a matter arising under this Chapter, that a particular financial product or financial service was provided to a person as a retail client;  and

 

(b)the product or the service is one to which subsection (7) applies;

 

it is presumed that the product or service was provided to the person as a retail client unless the contrary is established.

 

Note 1:  There is no such presumption in relation to the provision of a product or service that is or relates to a general insurance product, a superannuation product or an RSA product.  Whether or not such a product, or a service relating to such a product, was provided to a person as a retail client is to be resolved as provided in subsection (5) or (6), as the case requires.

 

Note 2:  In criminal proceedings, a defendant bears an evidential burden in relation to the matters in paragraphs (7)(a) to (d) (see subsection (8)).’

With the exception of one named investor, this section operates to produce the result that each of the other investors in the scheme was a ‘retail client’.

  1. As I have observed, no Product Disclosure Statements were issued to any of those investors, and accordingly it is clear that Mr Whitford contravened s 1012B of the Act by issuing financial products without giving a Product Disclosure Statement.
  1. In making these findings, and exercising my discretion in any event to allow ASIC default judgment pursuant to UCPR r 288, I am conscious of the fact that it is a serious matter for a court to make a declaration of a statutory contravention against an individual. I would, however, propose to do so in the present case, respectfully adopting in that regard the following observations in Re McDougall by Young J at [55]:

‘[55]Since Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121;  36 ALR 257;  6 ACLR 45, esp at CLR 125;  ALR 258;  ACLR 47, the courts have recognised that the grant of declaratory relief on the application of a statutory body such as ASIC may serve important law enforcement purposes:  see Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 at 603;  14 ACLR 644 at 647;  Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [30]-[31];  and Pegasus at 571, ASIC is charged with the administration and enforcement of the Act, and there will be many cases where it is in the public interest for the courts to make a declaration on ASIC’s application that the Act has been contravened in specified respects.  The making of such a declaration does not simply record the outcome of enforcement proceedings;  it may also be an appropriate way of marking the court’s disapproval of the contravening conduct:  see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97-9 and 106, 110;  113 ALR 257 at 265-7 and 274, 278;  25 IPR 509 at 517-9 and 525, 530.

  1. ASIC separately seeks an injunction to restrain Mr Whitford from dealing with any property of the scheme which he may still hold. As Mr Whitford has not appeared to this proceeding, despite having been duly served, I do not know whether he does, in fact, have any of the scheme’s property in his possession or under his control. That notwithstanding, by reason of the orders previously made for the winding up of the scheme, the liquidators of the scheme are immediately entitled to possession of any such property. It is relevant also in that regard that the liquidator, when administrator of the scheme, deposed to the significant shortfall in the scheme’s assets, amounting to numerous millions of dollars. In those circumstances, it seems to me appropriate to grant the injunction sought, subject, of course, to Mr Whitford having liberty to apply to discharge or vary the injunction on proper notice and, needless to say, with appropriate supporting material.
  1. Accordingly, I make the following orders:

For the purpose of this order:

 

‘Investor’ means a person or entity who has contributed moneys in respect of the Scheme.

 

‘Property’ means all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of section 1323(2A) of the Corporations Act 2001 (Cth) (‘the Act’), any property held otherwise than as sole beneficial owner.

 

‘The Scheme’ means arrangements whereby investors contributed money to be traded on international markets, which money was deposited (directly or indirectly) into bank accounts held with the Bank of New Zealand BSB 20100 account numbers F672029-0000, and F672029-0001 in the name of the First Respondent and transferred to an account or accounts, including an account with the Bank of New Zealand BSB 20100 account number F672029-0002 in the name of the First Respondent, an account in the name of the First Respondent with Open E Cry LLC in the United States of America and an account held with the HSBC bank in Hong Kong account number 503-167785-853 in the name of the Fourth Respondent.

 

THE COURT DECLARES THAT:

 

  1. In contravention of section 601ED(5) of the Act, during the period January 2006 to 30 November 2006 the Second Respondent operated the Scheme which, by the Order of this Honourable Court dated
    29 February 2008, was declared to be a managed investment scheme which was required to be registered under s 601EB of the Act and was not so registered.

 

  1. In contravention of section 911A of the Act, during the period
    January 2006 to 30 November 2006 the Second Respondent carried on a financial services business namely, the business of dealing with the interests held by Investors in the Scheme, without holding an Australian financial services licence covering the provision of those financial services.

 

  1. In contravention of section 1012B of the Act, during the period January 2006 to 30 November 2006 the Second Respondent arranged for the issue of financial products namely, the interest held by Investors in the Scheme, without giving a Product Disclosure Statement for those financial products.

 

AND THE COURT ORDERS THAT:

 

  1. The Second Respondent (by himself, his servants or agents or otherwise howsoever) be restrained from:

 

(a)transferring, encumbering, or in any other way disposing of or dealing with, whether directly or indirectly, any property of the Scheme, or causing or permitting any property of the Scheme to be transferred, encumbered, or in any other way disposed of or dealt with, either directly or indirectly;

 

(b)transferring, encumbering, or in any other way disposing of or dealing with, whether directly or indirectly, any property acquired wholly or partly with funds received in consequence of the operation of the Scheme, or causing or permitting any such property to be transferred, encumbered, or in any other way disposed of or dealt with, either directly or indirectly.

 

  1. The Second Respondent pay the Applicant’s costs of and incidental to this Application to be assessed on the standard basis.

 

  1. The Second Respondent have liberty to apply to discharge or vary Order 4 on five (5) days written notice to the Applicant.

Footnotes

[1] Re:  Risqy Limited [2008] QSC 107

[2] (2002) 41 ACSR 561.

[3] (2006) 57 ACSR 175 at 184.

[4] (2006) 57 ACSR 175.

[5] At [36].

Close

Editorial Notes

  • Published Case Name:

    Re: Risqy Limited (No 2)

  • Shortened Case Name:

    Re: Risqy Limited (No 2)

  • MNC:

    [2008] QSC 139

  • Court:

    QSC

  • Judge(s):

    Daubney J

  • Date:

    26 Jun 2008

  • White Star Case:

    Yes

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

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