ASIC v Banovec

Background 2Section 1323(1) of the Act relevantly provides: Where: (a) an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or (b) ... (c) a civil proceeding has been begun against a person under this Act; and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person ) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person ), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders: ... The section then sets out the orders that the court may make. There is no question that the section permits the court to make orders of the type made in this case. 3On 14 August 2009, ASIC commenced an investigation into the defendants in respect of suspected contraventions of the Act arising in relation to the affairs of TZ Limited ( TZL ), a listed public company. Mr Sigalla was a director of TZL. BZI is a company associated with Mr Sigalla which was suspected of being involved in the contraventions under investigation. 4On 26 August 2009, ASIC made an ex parte application for asset preservation orders against Mr Sigalla and BZI, among others, under s 1323 of the Act. The orders were sought to protect the interests of TZL. At the same time, TZL sought similar relief against ZMS Investments Pty Ltd, another company associated with Mr Sigalla. Those applications were heard by Bergin CJ in Eq, who made the orders sought. 5There was a contested hearing in relation to ASIC's application on 15 September 2009 before Hammerschlag J. At that time, his Honour made orders the effect of which was to continue the orders that had been made by Bergin CJ in Eq. His Honour also directed ASIC to notify the lawyers for Mr Sigalla and BZI and the lawyers for TZL whether it intended to file and serve a statement of claim by 23 October 2009 and ordered that, in the event that ASIC did not file and serve a statement of claim by that date, the orders made under s 1323 be discharged at 5.00 pm on 2 November 2009. 6On 22 October 2009, TZL filed a statement of claim in the proceedings it had commenced seeking damages against Mr Sigalla and TZI for an amount in excess of $10 million. 7On 2 November 2009, Barrett J extended the s 1323 orders by consent until 9 November 2009. 8On 9 November 2009, Barrett J ordered that a separate question be determined, the effect of which was to ask whether the freezing orders sought by ASIC under s 1323 were "necessary or desirable" for the purpose of protecting TZL's interests in circumstances where TZL had commenced its own proceedings. There was a contested hearing before Barrett J in relation to that question on that day. The following day Barrett J answered the separate question against Mr Sigalla and BZI. His Honour extended the asset preservation orders until 13 November 2009. 9On 13 November 2009, Mr Sirtes SC, who appeared for Mr Sigalla and BZI at that time, told the court that his clients would not be contesting the freezing order but for 3 issues. Those issues were One will be the extent of the carve out which needs to change owing to a change in Mr Sigalla's circumstances. Second, there will be a short issue of construction as to the question of whether or not the legislation supports an undertaking as to damages in the present kind of proceeding. Thirdly, there will be an issue as to the duration of the freezing orders. In those circumstances, Barrett J extended the asset preservation orders until 16 November 2009. The matter came before Austin J at that time. The asset preservation orders were extended by consent until 27 November 2009 and his Honour gave some directions for the hearing of the matter on that date. 10Austin J heard the matter on 27 and 30 November 2009. Following that hearing, the asset preservation orders were extended until 19 March 2010. 11Variations were made to the orders on 11 February 2010 and 16 August 2010 by consent. One effect of those variations was to extend the operation of the orders until 6 December 2010. The reason for extending the orders was that the hearing of the proceedings commenced by TZL, which had been set down to commence on 8 March 2010 was vacated, as were hearings set down to commence on 2 August 2010 and 22 November 2010. 12On 29 November 2010, ASIC notified Mr Sigalla that it did not intend to file a statement of claim in the proceedings, but that it did intend to make a further application to extend the asset preservation orders against Mr Sigalla and BZI until 14 February 2011 on the basis that:

What order should be made? 15Mr Stack, who appeared for ASIC, submitted that it was appropriate in the circumstances I have described that Mr Sigalla and BZI should pay ASIC's costs of these proceedings. He submitted that there was no reason to depart from the general principles set out in UCPR r 42.1 which provides: Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. Mr Stack characterised the "event" as ASIC's success in obtaining orders under s 1323 of the Act following contested hearings. 16Mr Stack also submitted that, although each case needs to be determined on its own facts, the following propositions generally follow from UCPR r 42.1: (a) where ASIC succeeds with a contested application for orders under s 1323, then the defendant should pay ASIC's costs; (b) where ASIC does not succeed with a contested application for orders under s 1323, then ASIC should pay the defendant's costs; and (c) where the defendant consents to orders under s 1323, then each party should bear its own costs. 17In support of those propositions, Mr Stack relied on the unreported decisions of White J in ASIC v Banovec ( delivered on 5 September 2007) and of Barrett J in ASIC v Bounard (delivered on 3 December 2007). 18In the former case, ASIC had been successful in obtaining asset preservation orders against the defendant on 16 May 2007, following a contested hearing on 14 May 2007. Those orders were made in support of investigations then being undertaken by ASIC into suspected contraventions of the Act. The matter came back before White J on 23 May 2007 to deal with a number of additional orders that had been sought by ASIC. Those orders included orders "that the defendant be restrained from dealing or disposing with money held for clients or with property acquired from moneys received by him from clients; that he be restrained from dealing with or disposing of any of his assets other than to pay ordinary living expenses up to $3,000 per week or costs reasonably incurred; and that he be restrained from coming within 100 metres of an Australian point of overseas departure." See ASIC v Banovec (No 2) [2007] NSWSC 961 at [4]. His Honour concluded that s 1323 did not give the court power to make any of those orders. 19White J delivered a separate judgment in relation to costs on 5 September 2007. In that judgment, his Honour rejected the submission that there be no order for costs and concluded that "the costs orders should reflect the success of both parties in the different stages of the litigation". White J ordered that the defendant pay ASIC's costs of the hearing on 14 May 2007 and that ASIC pay the defendant's costs of the hearing on 23 May 2007. 20ASIC v Bounard was also a case in which ASIC was carrying out an investigation in relation to possible contraventions of the Act by the defendants and it was in those circumstances that ASIC sought relief under s 1323. In that case, Barrett J made freezing orders in relation to two defendants until 11 February 2008, but declined to make orders against two other defendants. His Honour ordered that ASIC pay the costs of the successful defendants. In the case of the other two defendants, his Honour ordered that those defendants pay ASIC's costs. In reaching that conclusion, his Honour said (at [3]): One possibility is that the orders resulting from [the earlier] hearing, which will be in place until the specified date in February 2008, will simply lapse and evaporate at that point without any further hearing. That could happen without anything that has pending been dismissed, discontinued or otherwise dealt with. For that reason, I do not consider it appropriate to have regard to any concept of costs in the cause. I think that the costs consequences of the hearing before me should be determined and specified now. 21These decisions were referred to by Young CJ in Eq (as his Honour then was) in ASIC v Krecichwost [2008] NSWSC 855. His Honour said (at [29]) that he would not wish to differ from the decisions reached in those cases. However, his Honour said that "[e]ach case must be decided on its own facts and merits" (at [27]) and that he did not find either of those decisions of much guidance in the case before him. In that case, ASIC obtained orders against one of the defendants ex parte . The order was continued by consent and subsequently lapsed without ASIC taking any further steps. Young CJ in Eq ordered ASIC to pay the defendant's costs. In reaching that conclusion, his Honour said (at [27]): The principal justification for this is that the order was obtained to aid ASIC's investigation, ASIC should be funded to conduct investigations properly, the ultimate case against the 8 th defendant must have failed for insufficient evidence, if nothing else, and she has acted reasonably in allowing the order to continue without incurring the costs of a full fight. 22The decision in ASIC v Krecichwost was distinguished by Lindgren J in ASIC v Groves [2009] FCA 915. That case concerned an investigation by ASIC in connection with the collapse of ABC Learning Centres Ltd. In that case, ASIC sought an order, among others, under s 1323(1) appointing a receiver or receiver and manager of the property of Mr Groves. On the return date of the originating process, an interim regime was put into effect by consent pending a hearing in relation to the question whether the receivership could extend to property held by a company associated with Mr Groves. Ultimately, that question was resolved by consent. In those circumstances, Lindgren J ordered that the parties bear their own respective costs. In making that order, his Honour said (at [54]): In my opinion the parties should be left to bear their own respective costs. There has not been an adjudication upon the merits and it is not possible to say what the ultimate outcome of the proceeding would have been. In all the circumstances, the test that is to be applied to the conduct of the antagonists is one of reasonableness in the light of the nature of the particular proceeding and all the circumstances. In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 143 ALR 1, McHugh J said (at CLR 625; ALR 4) that where both parties appear to have acted reasonably, the proper exercise of the discretion as to costs will usually be that the court will make no order as to costs. ... 23Mr Sigalla represented himself at the hearing before me. Mr Sigalla also said that he represented BZI in relation to an application to adjourn the hearing. However, after I delivered judgment rejecting that application, Mr Sigalla indicated that he no longer represented BZI. Consequently, there was no appearance for that company on the current application. 24Mr Sigalla's principal submission was that ASIC has not brought its own proceedings and in those circumstances a costs order should not be made in its favour. 25In my opinion, there are difficulties with the approach advocated by Mr Stack. It seems to follow from that approach that, if the TZL proceedings had proceeded to judgment and Mr Sigalla and BZI had been successful, ASIC would still be entitled to its costs. That would be an odd result. 26It is correct as Barrett J pointed out in ASIC v Bounard (at [2]) that proceedings under s 1323 cannot necessarily be regarded, for costs purposes, as the equivalent of an interlocutory hearing. That is so because there may never be a final hearing on the merits. That was the position in Bounard, Banovec and Krecichwost . In those circumstances, it is appropriate to determine the question of costs by reference to the actual results in the application under s 1323, which is what White J, Barrett J and Young CJ in Eq did. The application under s 1323 can be viewed as an independent proceeding in aid of an investigation being undertaken by ASIC; and the costs order will depend on the extent to which ASIC has been successful in obtaining orders under s 1323 and other relevant conduct of the parties. 27However, where the orders sought and obtained under s 1323 are obviously in aid of substantive proceedings commenced by ASIC or the aggrieved party, I do not see why the outcome of those proceedings should not be taken into account in determining what costs order should be made. If ASIC or the aggrieved party is successful in the substantive proceedings generally it will be appropriate that the defendant pay ASIC's costs. Similarly, if the defendant is successful, it seems to me that generally ASIC should pay the defendant's costs. Similarly, where the proceedings are settled, it is appropriate to follow the approach adopted by McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin , as Lindgren J did in Groves . 28In this case, ASIC did not seek to establish that Mr Sigalla acted unreasonably in connection with his defence of the proceedings or that the settlement reached with Mr Sigalla should be treated as substantive success on the part of TZL in the case it brought. In those circumstances, I can see no reason for departing from the usual order that each party bear its or his own costs. 29Having reached that conclusion, I can see no reason why ASIC should not pay Mr Sigalla's costs of the application before me, other than the costs of the failed adjournment application. Mr Sigalla should pay ASIC those costs.

At a glance

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Before

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Judgment (5 paragraphs)

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Legislation Cited (2)

Cases Cited (4)