ASIC v P.J.C.B. INTERNATIONAL LTD [2009] NSWSC 34 | Case summary

6021/07 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v P.J.C.B. INTERNATIONAL LTD & ORS JUDGMENT 1 The applicants are the fourteenth and fifteenth defendants in these proceedings commenced by Australian Securities and Investments Commission ("ASIC") by an originating process filed in court on 14 December 2007. The fourteenth and fifteenth defendants were added as parties on 5 February 2008. Freezing orders were made against them on that date. Those orders are expressed to operate until further order. 2 On 16 December 2008, I heard an application by the fourteenth and fifteenth defendants (by notice of motion filed on 8 December 2008) for an order discharging the freezing orders to which they are subject. 3 In order that that application may be understood in context, it is necessary to refer to the substantive relief ASIC seeks in the proceedings. First, it seeks a declaration that each of several defendants (including the fourteenth and fifteenth) operated or promoted an unregistered managed investment scheme known as the "Integrity Plus Scheme" contrary to s 601ED(5) of the Corporations Act 2001 (Cth) or, in the alternative, was knowingly concerned in such a contravention by certain other defendants. Second, there is an application for a statutory injunction restraining each of the same defendants from operating an unregistered managed investment scheme. Third, there is an application for a statutory order compelling each of the same defendants to "refund the total amount of principal invested by each Scheme investor together with all undistributed returns due or payable to Scheme Investors as of the date of these orders, less the amount of principal, if any, returned to each Scheme Investor prior to the date of these orders". 4 There is thus pending, in respect of each of the fourteenth and fifteenth defendants (in common with others), an application for an order that that defendant pay money to "Scheme Investors". 5 On 11 June 2008, the proceedings were listed for hearing on 19 to 26 September 2008. Shortly afterwards, on 20 June 2008, ASIC was ordered to file a statement of claim by 4 July 2008. On 8 July 2008, however, the hearing dates were vacated. On 21 July 2008, ASIC was again ordered to file a statement of claim with a deadline of 28 July 2008. On 15 September 2008, ASIC was ordered to file a statement of claim by 5 December 2008. 6 ASIC had not filed any statement of claim at the time the application of the fourteenth and fifteenth defendants was heard by me. 7 The gist of ASIC's case is, however, fairly clear, even though some of the details remain to be developed. The Integrity Plus Scheme entailed the pooling of moneys made available by numerous persons in such a way that those moneys were credited to either an account with the sixth defendant (Technocash Pty Ltd) maintained by the first defendant (PJCB International Ltd) or a trust account maintained by an American lawyer in the United States. A substantial amount of money obtained back from these accounts has been paid into court. 8 One of the defendants who, according to ASIC's investigations, has handled substantial sums in these ways is the thirteenth defendant, Geneva Financial Ltd ("Geneva"). Documentary evidence suggests that this is so. 9 Geneva is incorporated in Anguilla but, it seems, based at Nelson in New Zealand. It had a foreign currency account with Westpac Banking Corporation in New Zealand and an account with Cadent Financial Services LLC in the United States. In the account opening forms for the Westpac account, each of the fourteenth and fifteenth defendants is referred to as an "owner" of Geneva. In the forms relating to the Cadent account, each is referred to as a "principal" of Geneva. In another Cadent document, each is described as "beneficial owner and controller" of Geneva. There are also various documents signed by both individuals in relation to operations on the Cadent account. 10 There are records of substantial payments out of PJCB's Technocash account to Geneva. 11 In letters to Cadent dated 8 and 11 February 2008, New Zealand solicitors acting for Geneva and the fourteenth and fifteenth defendants stated that PJCB was the legal and beneficial owner of certain funds in Geneva's account with Cadent and that the balance was "in the beneficial ownership of" the fourteenth and fifteenth defendants. The New Zealand lawyers instructed Cadent to pay certain funds into this court out of Geneva's account with Cadent, thus acknowledging that they were scheme funds. 12 ASIC maintains that the fourteenth and fifteenth defendants were involved in the operation of the Integrity Plus Scheme in that, at the least, they collected funds through Geneva into the Cadent account which was a repository for scheme funds. Funds paid out of PJCB's Technocash account to Geneva - and thus into the control of the fourteenth and fifteenth defendants - may turn out to be funds to which persons investing in the Integrity Plus Scheme are entitled. 13 Mr D J Hobbs was joined as a defendant to these proceedings in July 2008. He is said by ASIC to be one of several persons closely involved in the operation of the Integrity Plus Scheme and an associated scheme. An ASIC investigation in respect of Mr Hobbs commenced in June 2008. ASIC alleges that he was, for some time, an officer of Future Trading Corporation Ltd ("FTC"), a company that was instrumental in raising substantial funds for the Integrity Plus Scheme. ASIC is of the view that Mr Hobbs was responsible for the activities of FTC until it was deregistered in late 2007 in the place of its incorporation (Vanuatu). 14 The fourteenth defendant is Mr Hobbs' wife. The fifteenth defendant is his sister-in-law. 15 The present proceedings have been on foot for a long time. As I have said, ASIC has not yet filed a statement of claim despite directions to do so; and a hearing scheduled for September 2008 was vacated in July 2008. There are two relevant factors in relation to that. One is that the direction of ASIC's investigation changed after June 2008 when the apparent role of Mr Hobbs emerged (it is this that caused ASIC to seek the vacation of the hearing dates). The second is that, as at December 2008, ASIC was in the process of preparing a brief to the Commonwealth Department of Public Prosecutions for it to consider whether criminal proceedings should be instituted. This is referred to in paragraph 27 of Mr Howard's affidavit of 5 December 2008. 16 Evidence from ASIC is that it has an advanced draft of a statement of claim for these proceedings in which breaches of civil penalty provisions of the Corporations Act are alleged. I quote from paragraph 28 of Mr Howard's affidavit of 5 December 2008: "In accordance with usual procedure, which is the subject of a confidential Memorandum of Understanding between ASIC and the CDPP, ASIC must consult with the CDPP before making any application for a civil penalty order. As ASIC is still investigating this matter, ASIC has not been able to commence the consultation process. Further, I am aware from my experience in other matters that it is highly likely that the CDPP will require the brief referred to in paragraph 27 above, and some time to review that brief, before the consultation process can be completed. Given this, in my view ASIC will not be in a position to file its Statement of Claim in the next 6 months." 17 The emergence of a criminal prosecution would very likely result in a stay of these proceedings: see, for example, Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd [2007] FCA 1868; (2007) 164 FCR 487. 18 Further information about the current state of ASIC's investigation is contained in paragraphs 25 and 26 of Mr Howard's affidavit: "25. ASIC's investigation is ongoing. ASIC is continuing to gather information relevant to the set-up and conduct of the Scheme. In particular, ASIC is in the process of: (a) completing three examinations pursuant to section 19 of the ASIC Act of some persons of interest; (b) conducting, or intending to conduct, detailed interviews of at least a further 10 persons; (c) obtaining assistance from various overseas regulators in relation to the provision of documents relevant to ASIC's investigation, and the examination of a number of individuals pursuant to the compulsory powers available to those regulators in their jurisdictions; (d) reviewing approximately 5,000 pages of documents provided to ASIC by the United States Commodity Futures Trading Commission, together with approximately 2 boxes of documents and 1.6GB of information provided to ASIC by Mr Taylor. 26. ASIC is continuing to receive considerable assistance from a number of overseas regulators in relation to its investigation because significant aspects of the Scheme's operations took place offshore, and by persons not resident in Australia. As a result, the time which it is taking ASIC to conduct its investigation is, in part, not in ASIC's own hands. ASIC is subject to the time which those regulators require to collect documents and conduct examinations. While it is difficult for me to estimate when the matters referred to in paragraph 25 above will be complete, I anticipate that some delay will be caused by the Christmas break, and that they are likely to take approximately 4-5 months." 19 I turn now to the legal principles concerning freezing orders of the kind that can be made where the jurisdiction to appoint a receiver under s 1323 of the Corporations Act is enlivened (see Re Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 3) [2006] FCA 433; (2006) 57 ACSR 307; Australian Securities and Investments Commission v Krecichwost [2007] NSWSC 948; (2007) 64 ACSR 411; Australian Securities and Investments Commission v Banovec (No 2) [2007] NSWSC 961; (2007) 214 FLR 33; Australian Securities and Investments Commission v Burnard [2007] NSWSC 1217; (2007) 64 ACSR 360). It is not suggested by the present applicants that the power to make a freezing order is not attracted in this case. 20 It is clear that an investigation is being carried out by ASIC as referred to in s 1323(1)(a). The persons in relation to whose conduct the investigation is underway include Mr Hobbs, his wife (the fourteenth defendant), his sister-in-law (the fifteenth defendant) and Geneva (the thirteenth defendant), a company apparently owned and controlled by the fourteenth defendant and the fifteenth defendant. Having regard to ASIC's claim that various defendants, including the fourteenth and fifteenth, should be ordered to pay money to investors in the Integrity Plus Scheme, those investors are, in terms of s 1323(1), persons to whom the fourteenth and fifteenth defendants (among other persons) may be liable to pay money or to account. 21 In those circumstances it is necessary to engage in the kind of risk assessment and risk management described by French J in Australian Securities and Investments Commission v Carey (No 3) (above). As his Honour there observed, there is no need for ASIC to show a prima facie case of liability on the part of the relevant person or that the person's assets have been, or are about to be, dissipated. 22 The fourteenth and fifteenth defendants emphasise that they have duly complied with orders of the court, including by providing affidavits detailing their assets; and that this is so despite the fact that they and their assets are outside Australia (they live in New Zealand). They say that there is no evidence of any threat to dissipate assets and that ASIC has not been diligent in progressing the proceedings. 23 Despite all this, I am of the opinion that the risk assessment and risk management to which French J referred require that the freezing orders be maintained. The fourteenth and fifteenth defendants have a close relationship with a person who emerged in mid-2008 as someone suspected to have played a significant role in the promotion and operation of the Integrity Plus Scheme. In addition, they are the owners of a company through which substantial funds involved in the scheme passed. They have shown themselves to have experience in opening accounts with financial institutions in other countries and in transferring funds internationally. ASIC's delay in producing a statement of claim is explained in Mr Howard's affidavit to which I have referred. 24 The interests of persons who invested in the Integrity Plus Scheme should, in my opinion, be protected by an ongoing regime under which the assets of the fourteenth and fifteenth defendants are restricted - subject always, of course, to their ability to seek releases for good and proper reasons. 25 It is sometimes a disquieting aspect of these cases that ASIC investigations take what appears to be a long time. I commented on that in Australian Securities and Investments Commission v Burnard (above) and I note that, in Australian Securities and Investments Commission v Hawley (No 2) [2008] FCA 1598, it was with some reluctance that Perram J made a travel restriction order in a case where the ASIC investigation had been in progress for almost three years. It may be accepted that each investigation will move at a pace dictated by its own circumstances and that any need to prepare a brief to the Commonwealth Department of Public Prosecutions is likely to delay matters. In the present case, the international dimension and the need to trace funds and make inquiries in other countries adds a particular timing difficulty. The court must, however, be increasingly concerned about maintaining restraints as investigations become very prolonged. In saying this, I do not suggest that that concern might not be overcome in a particular case by evidence substantiating the risk against which restraints are designed to guard. Nor do I suggest that the investigation in this case is excessively prolonged. 26 The application of the fourteenth and fifteenth defendants for an order that order 11 made on 5 February 2008 be discharged is dismissed with costs. **********

ASIC v P.J.C.B. INTERNATIONAL LTD

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