ASIC v IP Management Group Pty Ltd [2000] VSC 576

Supreme Court of Victoria|2000-12-15|Before: HARPER, J.

According to the Australian Securities and Investment Commission (ASIC), a group of companies associated with Infomercial Management Group Pty. Ltd. (the first defendant in proceedings No. 5009 of 2000 and 5010 of 2000) and IP Product Management Group Pty. Ltd. (the first defendant in proceeding No. 5008 of 2000) were and are project managers for a number of partnerships and joint ventures. These were formed to produce and market "infomercials" and "a theme based collaborative music compact disc and associated additional merchandise": see paragraph 6 of the Points of Claim in proceeding No. 5008 of 2000. Funds were required. These were (according to ASIC) obtained from investors who were induced to part with their money by misleading and deceptive conduct.

Three schemes or groups of schemes are the subject of three separate proceedings. Two, those known respectively as "the 1997 Infomercial Scheme" and "the 1998 Infomercial Scheme" are also said to breach the prescribed interest scheme provisions of the Corporations Law ("the Law"). The third, a group of schemes known as "the 1999 Music Schemes" is said to breach the managed investment scheme provisions of that Law.

Each proceeding has been instituted by ASIC as plaintiff. The first of these, No. 5008 of 2000, concerns the 1999 Music Schemes. The second, No. 5009 of 2000, concerns the 1998 Infomercial Scheme. The last, No. 5010 of 2000, picks up ASIC's allegations concerning the 1997 Infomercial Scheme.

ASIC claims relief under a number of heads. First, it seeks orders that the project managers be wound up pursuant to s.461 of the Law (which provides for the grounds upon which a company may be wound up by the Court; and it further provides that an order that a company be wound up might be made if the Court is of opinion that it is just and equitable to do so). Secondly, ASIC seeks orders under s.1114 of the Law (which confers power on the Court - where (inter alia) it appears on the application of ASIC that there has been a contravention of any law relating to trading or dealing in securities - to make such order or orders as it thinks fit). It also seeks declarations pursuant to s.1114 of the Law to the effect that each of the 1997 Infomercial Scheme and the 1998 Infomercial Scheme was in breach of ss.1018, 1064 and 1065 of the Law (which govern offers to subscribe for (a) securities of a corporation or (b) a prescribed interest). It further seeks an order that the 1999 Music Schemes be wound up pursuant to s.601EE of the Law, and declarations that the defendants engaged in conduct which was misleading or deceptive in contravention of s.995 of the Law, s.52 of the Trade Practices Act and s.11 of the Fair Trading Act.

It is this last set of declarations which, according to the defendants, are beyond the power of the Court to grant. Much time and effort has been expended on the argument. I am not confident that the expenditure was commensurate with the end sought to be achieved.

The point of fundamental significance is that ASIC seeks to invoke s.461 of the Law. I have already adverted to the fact that this section empowers the Court to order the winding up of a company if it is just and equitable to do so. What is just and equitable will depend on the circumstances. The defendants are entitled to know what circumstance ASIC puts forward as grounding its application. One such circumstance might be, and in this case according to ASIC is, that the defendants who are incorporated and who are project managers of the several schemes have engaged in misleading or deceptive conduct. That is a circumstance which, if made out, could at law form a proper basis for a winding up order: ASIC v. Austimber Pty. Ltd.[1]; ASIC v. Austimber Finance Pty. Ltd.[2].

Accordingly, ASIC is bound to include in its pleadings an allegation to this effect. If it did not, the defendants would doubtless complain that they had not been told what they needed to know if they were to meet the case put against them. Any such complaint would doubtless be fully justified. So also, if the misleading and deceptive conduct were said to arise in trade or commerce. It may well be relevant to the exercise of the discretion that the conduct in question was not merely misleading or deceptive but also occurred in a commercial context. If this is what ASIC intends to prove, then the defendants would be entitled to complain if this allegation were not added to that about misleading or deceptive conduct.

Conduct in trade or commerce which is misleading or deceptive is at least prima facie caught by s.52 of the Trade Practices Act. It is true that, in applying that provision, the courts have examined the meaning of the expressions "trade or commerce" and "misleading or deceptive". But in doing so, the courts have not made either expression into a term of art the meaning of which is peculiar to the legislation. Accordingly, a declaration that the defendants or one or other of them engaged in misleading or deceptive conduct, and did so in trade or commerce, necessarily (or at least arguably so) carries with it a statement in declaratory form that the defendant or defendants in question are or were in breach of s.52.

Although it is not entirely clear, I assume that the defendants do not challenge the proposition that the Court has power in appropriate circumstances to order that a defendant which is also an incorporated project manager be wound up. I likewise assume that the defendants do not challenge the proposition that, in the exercise of its discretion whether or not to make such an order, the Court might take into account the fact (if it be established) that the relevant defendant engaged, in trade or commerce, in conduct which was misleading or deceptive. In any event, whether these propositions are challenged or not, they are at least sufficiently arguable to warrant their retention in the pleadings upon which ASIC relies. This being so, there seems to be no reason why the pleadings should not go that one step further and allege a breach of the Trade Practices Act. The only consideration to the contrary is that such an addition is (for the reasons discussed above) unnecessary. On balance, it seems to me that this is not sufficient reason for the Court to interfere with ASIC's right to plead its case in any way which conforms with the relevant law and practice.

The defendants submit that ASIC is a creature of statute. This is undoubtedly true. Their submission goes on to assert that nothing in any relevant legislative provision empowers ASIC to enforce the Trade Practices Act. I am prepared, for the purposes of this ruling, to accept that this proposition is also true. It does not follow, however, that this Court is thereby deprived of the power to grant the merely declaratory relief which, on this part of its case, ASIC seeks. In so seeking, ASIC does not need to exercise any power or right to enforce the Trade Practices Act. At the very least, this is arguably so. It is therefore not appropriate, at this stage of the proceedings, to strike out the claims for the impugned declarations.

The application to do so is dismissed. But the position under the Fair Trading Act is different. As from 13 March 2000, the provisions of that Act do not apply to dealings in securities: s.995A of the Law, as inserted by the Corporate Law Economic Reform Program Act 1999, Schedule 3, Part 1, Item 61. In these circumstances, it would be both wrong and pointless for ASIC to seek a declaration or declarations to the effect that provisions of the Fair Trading Act have been breached. Accordingly, those allegations and claims in relation to the Fair Trading Act, should be struck out from the several Points of Claim.

There remains the claim for declarations made under s.163A of the Trade Practices Act. That section provides, among other things, that a person may institute a proceeding seeking, in relation to a matter arising under the Act, the making of a declaration in relation to the operation or effect of a provision within Division 1 of Part 5 of the Act. Section 163A may be called in aid only where a proceeding has been instituted in relation to a matter arising under the Act. In the circumstances of these proceedings, this gives rise to two issues. The first of these is whether the proceedings or any of them relate to a matter arising under the Trade Practices Act. In this context I note, although not as a conclusive point, that each proceeding is headed "In the matter of the Corporations Law of Victoria". There is, however, no reference in the heading to the Trade Practices Act. The second issue is whether ASIC is empowered to bring proceedings pursuant to the provisions of the Trade Practices Act. Both issues are, in my opinion, open to doubt.

The present application is, however, not the venue for resolving those doubts. The position is not so clear that I should act now to preclude reliance by ASIC on s.163A. The efficacy in law and in fact of that reliance should, I think, be determined at the trial.

The defendants also seek an order that the trial date for these proceedings, presently fixed for Monday 30 July 2001, be vacated. Nothing in the material put forward in support of the application justifies the taking of that step now. It is said that a trial date in July will prevent the defendants' proper preparation for litigation which they, or some of them, instituted in the United States before the present proceedings began, but after the third defendant (Mr. Peter Ambrosy) had been arrested, and at a time when he must have known that committal proceedings were likely. Those proceedings will now be held next April. Much of the preparation for them will also relate to the proceedings in this Court, and those in the United States. Indeed, preparation for each will to an extent hinder, but also to an extent assist, preparation for the others.

It will doubtless be very difficult for Mr. Ambrosy to assist in the conduct of proceedings in Melbourne in August while preparing for a trial in the United States in late September. On the other hand, it cannot at present be certain that the trial in California will go ahead at that time. Again, much preparation for both sets of civil litigation should be capable of being done before the end of July next year.

If the trial date here is vacated, it may not be possible to re-list the present proceedings for a very long time. The committal proceedings may be followed by a criminal trial. That trial may interfere with the re-listing of these proceedings. The Californian litigation may also have a like effect, because it is entirely possible that the commencement of that trial will be successively delayed, necessitating a further alteration in trial dates for Melbourne. The consequences for the proper conduct of these proceedings might in such circumstances be very adverse.

For these reasons, it would in my opinion be irresponsible to now vacate the trial date presently fixed for 30 July 2001.

Law Economic Reform Program Act 1999

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