ASIC v SIGALLA

4287/09 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ANDREW SIGALLA & 4 ORS JUDGMENT 1 These proceedings 4287/09 were commenced on 26 August 2009 when Australian Securities and Investments Commission ("ASIC") filed an originating process in which five defendants are named. They include Andrew Sigalla and BZI Pty Ltd ("BZI"), a company owned and controlled by him. For present purposes, I do not need to refer to the other defendants. 2 An amended originating process was filed by ASIC on 9 September 2009. 3 The proceedings concern the affairs of TZ Limited ("TZL"), a company admitted to the official list of Australian Stock Exchange. Mr Sigalla was until early June 2009 or thereabouts a director (and chairman of directors ) of TZL. Trading in TZL shares on the stock exchange is currently suspended. 4 By its originating process, ASIC sought, as against Mr Sigalla and BZI, a number of orders, including asset preservation orders. It did so pursuant to s 1323(1) of the Corporations Act 2001 (Cth). Also sought against Mr Sigalla by reference to s 1323(1) was an order that he not leave Australia or attempt to do so and an order that he surrender his passport. 5 Asset preservation orders of limited duration were made against Mr Sigalla and BZI on 26 August 2009. These were continued on 31 August 2009, 3 September 2009 and 15 September 2009. 6 On the last of those days, it was ordered that the asset preservation orders be extended until 2 November 2009 on the basis that, if ASIC did not file and serve a statement of claim by 23 October 2009, those orders would be discharged on 2 November 2009 unless the court otherwise determined. No statement of claim was filed and served by ASIC by 23 October 2009. When the matter came before the court on 2 November 2009, the asset preservations orders were extended up to 9 November 2009 and that date was fixed for the hearing of ASIC's claim for further continuation of those orders. 7 When ASIC moved on 9 November 2009 for a continuation of the orders until further order, there was an application by Mr Sigalla and BZI under rule 28.2 of the Uniform Civil Procedure Rules 2005 for an order that a separate question be determined. I granted that application and then proceeded to hear submissions on the separate question. Before setting out the separate question, I should refer to another relevant action pending in this court, being 4286/09 which I shall call the "TZL proceedings". 8 The TZL proceedings were commenced by TZL as sole plaintiff, also on 26 August 2009. Mr Sigalla and BZI are among the defendants in those proceedings. It is sufficient for present purposes to say that TZL alleges against Mr Sigalla various breaches of duties owed by him as a director of TZL and that a case of knowing involvement in those breaches is advanced against BZI. The allegations are based on the proposition that Mr Sigalla was instrumental in causing TZL to make certain payments which were not for TZL's benefit; and that BZI, under the auspices of Mr Sigalla, obtained advantages from the making of those payments. 9 Certain asset preservation orders were made in the TZL proceedings, culminating in orders of 16 September 2009. But no such order was made in those proceedings against Mr Sigalla or BZI. Rather, in item 7(a) of short minutes of orders made on that day, the court noted a consent of Mr Sigalla and BZI to the making against them in the TZL proceedings of freezing orders in the same terms as those that had been made in these present proceedings, if TZL served a statement of claim on them in the TZL proceedings by 23 October 2009 and if the asset preservation orders sought by ASIC were not continued. The condition concerning filing of a statement of claim by TZL was satisfied, with the result that, although no asset preservation orders are extant against Mr Sigalla and BZI in the TZL proceedings, those defendants to those proceedings have consented to the imposition there of asset preservation orders the same as those made in these proceedings, if the last-mentioned orders are not continued. 10 The TZL proceedings are to be heard over an estimated ten days commencing 8 March 2010. When these present proceedings were before the court on 9 November 2009, Mr Sigalla gave to the court, by his counsel, an undertaking not to leave Australia or attempt to leave Australia before the conclusion of the TZL proceedings. 11 It is in the context just described that the question for separate determination must be addressed. The question is: "Given the existence of proceedings 4286/09 brought by TZ Limited against defendants including ZMS, BZI and Mr Sigalla, the existence of order 7(a) of the orders of 17 September 2009 in those proceedings and the undertaking by Mr Sigalla given to the court in these proceedings not to leave Australia or attempt to leave Australia before the conclusion of proceedings 4286/09 scheduled for hearing commencing on 8 March 2010, are the freezing orders sought by ASIC under s 1323(1) in these proceedings "necessary or desirable" for the purpose of protecting the interests of any "person aggrieved" as defined by that section?" 12 It is accepted by ASIC, Mr Sigalla and BZI that if this question is answered in the negative, these proceedings must be dismissed as against Mr Sigalla and BZI. 13 As was made clear by submissions on 9 November 2009, the broad issue raised by the separate question is whether the "necessary or desirable" aspect of s 1323(1) can possibly be satisfied so as to justify the continuation of the asset preservation orders against Mr Sigalla and BZI in these proceedings, if, as has been seen, TZL has at its disposal the means of obtaining orders in identical terms in the TZL proceedings. 14 The relevant part of s 1323(1) is as follows: "(1) 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) a prosecution has been begun against a person for a contravention of this Act; or (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: …" 15 There follow various descriptions of orders. Among them are an order prohibiting the relevant person from leaving Australia without the consent of the court and an order appointing a receiver of all or some of the property of the relevant person. An asset preservation or freezing order is not among the types of orders referred to in s 1323(1), but it has been held in a number of cases that the power to appoint a receiver includes a power to make an asset preservation or freezing order as an "alternative or lesser order": see, for example, 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) 25 ACLC 1203; Australian Securities and Investments Commission v Burnard [2007] NSWSC 1217; (2007) 64 ACSR 360. 16 A question debated upon the hearing in relation to the separate question concerns the identity of any "aggrieved person". It was accepted on both sides that the reference to the "relevant person" must be taken to be a reference to each of Mr Sigalla and BZI. This is because, first, each is accepted as being the subject of an ASIC investigation of the kind referred to in s 1323(1)(a) and, second, each is a defendant in the TZL proceedings which are proceedings of the kind referred to in s 1323(1)(c). An "aggrieved person" is accordingly a person to whom one or both of Mr Sigalla and BZI "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". In the present case, the monetary liability is, at best, potential or prospective. Case law makes it plain that any liability to pay money is relevant, whether or not connected with, for example, the s 1323(1)(c) civil proceeding the existence of which affords access to the section. 17 It was accepted on both sides that it is only when the persons to whom the "relevant person" is liable or prospectively liable (being, as I have said, the "aggrieved persons") have been identified and their interests have been assessed that it is possible to say what is "necessary or desirable" for the purpose of protecting those interests. 18 In written submissions filed in advance of the hearing on 9 November 2009, ASIC proceeded on the footing that TZL and its shareholders are "aggrieved persons". It is clear that TZL is an "aggrieved person", in that it sues Mr Sigalla and BZI upon the several causes of action pleaded in the TZL proceedings and there claims orders for the payment of money by them to it. It was submitted on behalf of Mr Sigalla and BZI that, since no shareholder of TZL can sue upon the causes of action pleaded in the TZL proceedings, the TZL shareholders are not "aggrieved persons", at least by reason of the matters pleaded in the TZL proceedings. 19 I accept that submission. A person can be an "aggrieved person" for the purposes of s 1323(1) only if the person is one to whom the "relevant person" either "is liable" or "may be or become liable" to pay money. A particular person will not be an "aggrieved person" unless the actual or prospective liability of the "relevant person" to pay money is a liability to pay money to that particular person. Given that the TZL proceedings assert breach of duties owed by Mr Sigalla as a director of TZL, TZL is the only person to whom the asserted liability to pay money is owed and the only person in whose favour an order for the payment of money may be made in consequence of that liability. 20 Focussing solely on the TZL proceedings and recognising that the flight risk in respect of Mr Sigalla is addressed by the undertaking he has given to the court, the basic proposition put by Mr Sigalla and BZI is that, if asset preservation orders are, as it were, available to TZL in the TZL proceedings merely for the asking, it is neither necessary nor desirable that orders be made (or continued) at the suit of ASIC in these proceedings for the purpose of protecting the interests of TZL. 21 I do not accept that proposition. 22 Asset preservation orders are not in force now in the TZL proceedings and there is no pending application by TZL for such orders in those proceedings. Nor is there any reason why TZL should be compelled to seek such orders against Mr Sigalla and BZI if it is to avoid the consequence that no such orders are in force against them in these proceedings. It cannot be regarded as part of the policy of s 1323(1) that it is not - or is no longer - "necessary or desirable" to make orders on the application of ASIC just because the person whose interests are at stake is able to pursue independently an application for such orders. 23 As was pointed out more than once in argument, an "aggrieved person" is itself a competent applicant under s 1323(1). TZL is therefore not restricted to the pursuit of an application for asset preservation orders on equitable principles - although it could, of course, make such an application. If, as an "aggrieved person", TZL applied under s 1323(1) for orders of the kind for which ASIC has applied in these proceedings, it could not be required to give an undertaking as to damages (see s 1323(4)) and, importantly, the core question would remain the same. It would still be necessary to decide whether it was "necessary or desirable", for the purpose of protecting relevant interests, that those orders be made. 24 What is "necessary or desirable" for the protection of relevant interests does not change according to the identity of the person making application under s 1323(1). 25 Section 1323(1) is most commonly invoked by ASIC. It is often invoked in circumstances where there are numerous "aggrieved persons" whose means or individual financial stakes are such that they are unable or unwilling to take action of their own. But as Mr Stack pointed out in submissions on ASIC's behalf, that is by no means always the case. There is also the point that, on the plain words of the section, it is concerned with protection of the interests of a single "aggrieved person", with the result that its availability is not restricted to cases where the interest of several potential beneficiaries of orders for the payment of money are at stake and ASIC undertakes a kind of protective role in relation to the group. It is equally available for the protection of a single person, whether on the person's application or on application by ASIC. 26 If ASIC, having access to s 1323(1), chooses to proceed under that section with a view to securing protection for a particular person or class of persons, the fact that the person or persons may be able to take steps of their own to achieve like protection is beside the point. The section does not look to the ability or willingness or financial capacity of aggrieved persons to seek self-help. It looks only to the question of what is necessary or desirable for the protection of the persons' interests, however rich or poor, powerful or weak or knowledgeable or ignorant they may be. 27 The fact that ASIC and an aggrieved person are each, in the alternative, a competent applicant for particular relief in a particular case emphasizes two things. The first is the role of ASIC in seeking to secure protection for others where breaches of the laws it administers are alleged. By moving under s 1323(1), ASIC does not pursue some interest of its own. It acts in the public interest. Once ASIC has decided to act under s 1323(1) in a given case, it is no part of the court's function, in addressing the "necessary or desirable" question, to proceed on a view that some aggrieved person, rather than ASIC, should have been the applicant under the section or should have sought self-help in some other way. 28 The other thing emphasised by the fact that ASIC and an "aggrieved person" each have standing under s 1323(1) is that the special regime that the section creates exists to support the operation and effectiveness of Corporations Act provisions. It is the existence of an investigation concerning a possible contravention of that Act, a prosecution for a contravention of that Act or a civil proceeding commenced under that Act that enlivens the court's jurisdiction. The interests of persons to whom money awards may be made on account of a Corporations Act contravention are singled out for special treatment and, potentially at least, special protection. 29 For the reasons stated, I am of the opinion that, even if the only relevant interests arising for consideration under s 1323(1) are those of TZL, neither the availability to TZL of access in its own right to that section nor its apparent ability (given the advance consent of Mr Sigalla and BZI) to obtain asset preservation orders on equitable principles in the TZL proceedings forecloses, in these proceedings, the conclusion that it is "necessary or desirable" that the relief ASIC seeks be granted. 30 ASIC made another important point. ASIC's investigation is in its relatively early stages. Matters beyond those pleaded in the TZL proceedings are under investigation. For example, ASIC has under consideration a possibility that TZL contravened s 675(2) of the Corporations Act by failing to make timely disclosure of price sensitive information to Australian Securities Exchange. If it such a contravention were established and it was also shown that Mr Sigalla, as the chairman of directors, was, in s 79 terms, "involved" in TZL's contravention, he would be guilty of a contravention of s 675(2A) which, by virtue of s 1317DA, read in the light of s 1317E(1)(ja), is a "financial services penalty provision". Any person who had suffered damage in relation to the contravention of s 675(2A) - for example, a person who had dealt in shares while the market was inadequately informed and had relied on the inadequate information - could therefore apply, by virtue of s 1317J(3A), for a "compensation order" under s 1317HA, that is, an order for the payment of compensation for damage resulting from the contravention. 31 I mention this matter merely to emphasise that the issue raised by the separate question is not necessarily confined to the TZL proceedings and that other persons may be "aggrieved persons". 32 The separate question does not attract or warrant the negative answer that would have resulted in dismissal of the proceedings as against Mr Sigalla and BZI. It will therefore be necessary to appoint a hearing date for the hearing of ASIC's application for continuation of orders against those parties. **********

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