Australian Securities and Investments Commission v AGM Markets Pty Ltd

BACKGROUND 9 ASIC commenced the present proceeding by an originating process filed on 9 February 2018. 10 On 12 February 2018 and 20 February 2018, I made orders, which were subsequently varied, restraining the use of the funds standing to the credit of two Commonwealth Bank of Australia accounts held by AGM. 11 On 7 March 2018, ASIC filed an interlocutory process seeking the appointment of a receiver and manager to AGM and also to the other corporate defendants. 12 On 21 March 2018, AGM provided undertakings to the Court and ASIC that AGM would: (a) take all reasonable steps to avoid giving personal financial product advice to retail clients in Australia; and (b) provide ASIC with access to recordings of calls between account managers engaged by AGM or its corporate authorised representatives, and clients. 13 On 3 April 2018, Mr Paul Tsangaris became a director and chief operating officer of AGM. Almost immediately upon joining AGM, Mr Tsangaris engaged Compliance National Pty Ltd, an independent financial services compliance advisory firm, to review the compliance processes then in place at AGM, advise on and update AGM's policies and procedures on compliance, and provide training to AGM staff. 14 On 11 April 2018, ASIC filed and served an amended originating process which sought orders that AGM and the other corporate defendants be wound up on the "just and equitable" ground. ASIC also filed and served an amended interlocutory process by which it sought, inter-alia, orders for the appointment of a provisional liquidator or a receiver to AGM and the other corporate defendants. 15 On 16 April 2018, AGM gave the Court and ASIC an undertaking which superseded the 21 March 2018 undertaking. 16 On 15 June 2018, ASIC approved an initial payment of USD 25,000 to Israel-based Panda Trading Systems Ltd, a full-service provider of a trading platform, customer relationship management software and related financial market data systems. ASIC also agreed to proposed orders for ongoing monthly payments of USD 10,000, with further payments up to a limit of USD 25,000 to be approved as required. 17 On 22 June 2018, I made orders restraining the use of funds standing to the credit of a third CBA account. 18 On 10 July 2018, ASIC filed an outline of submissions in support of the relief sought in the amended interlocutory process, including annexures A to E concerning contravening conduct alleged to have been engaged in by AGM, the third defendant (OT) and the fifth defendant (Ozifin). 19 On 24 July 2018, there was a hearing before me of the amended interlocutory process. 20 In the course of the hearing, Senior Counsel for ASIC handed up some proposed "Alternative Orders" in relation to the further conduct of the proceeding, which contemplated ASIC filing and serving a further amended originating process by 10 August 2018 and further affidavits on which it relied by 24 August 2018. Senior Counsel for ASIC told me that ASIC wanted to seek declaratory relief and that "consideration has also been given to seeking civil penalties as well. So it may be that the [further] amended originating process seeks both declarations and civil penalties". The alternative orders also contemplated AGM, OT and Ozifin filing and serving information disclosure affidavits. Senior Counsel for ASIC also told me that ASIC would hope to have a final hearing in this proceeding "in the latter half of this year". 21 On 27 July 2018, I delivered judgment on the interlocutory application. Apparently, shortly prior to this time ASIC circulated to AGM, OT and Ozifin ASIC's revised proposed orders in relation to the further conduct of this proceeding. Those revised proposed orders again contemplated ASIC filing and serving a further amended originating process and further affidavits on which it relied, albeit by extended deadlines. 22 In my judgment, I concluded that the interim appointment(s) sought by ASIC with respect to AGM was not justified. Relevantly, I found the following: (a) First, the giving of any future financial advice by AGM was regulated by the undertaking given by AGM to ASIC, which required AGM to take all reasonable steps to ensure that no "personal advice" was being provided by its staff or authorised representatives, including by monitoring a considerable sample of recordings on a weekly basis and providing weekly written certifications to ASIC. (b) Second, there was no urgent need to take further steps to secure or preserve the assets of AGM by the appointment of a provisional liquidator or receiver. (c) Third, there was no present need to appoint a provisional liquidator to investigate the affairs of AGM because of any alleged past wrongdoing or to manage the orderly withdrawal of client funds. (d) Fourth, Mr Tsangaris, who was not involved in any of the alleged past wrongdoing, was reviewing the affairs of AGM, including its business affairs and its compliance regime. (e) Fifth, an appointment would be likely to paralyse the normal operations of AGM. (f) Sixth, in terms of any need for an investigation to obtain information relevant to clients' potential claims, that need in and of itself did not justify the appointment of a provisional liquidator or interim receiver. 23 I made orders giving effect to my reasons including various information disclosure orders. Now apparently, contrary to the indications given to me at the hearings on 24 and 27 July 2018, ASIC has not since the July judgment contacted AGM's solicitors to finalise any further proposed orders, including as to any amendment by ASIC of its originating process or any pleading by ASIC with respect to the allegations it makes against AGM in the proceeding. Since the July judgment, ASIC has apparently not proposed any steps for the further programming of this proceeding for trial. 24 Contrastingly, on 28 August 2018 AGM was given a Notice of Hearing concerning the AFSL proceeding. The Notice of Hearing provided that a hearing in the AFSL proceeding would take place on 26 September 2018. 25 On 5 September 2018, AGM's solicitors sent a letter to ASIC setting out AGM's concerns that the commencement of the parallel AFSL proceeding whilst the court proceeding remained on foot posed a threat to the integrity of the proceeding before me. In light of these concerns, AGM requested that ASIC agree to stay the AFSL proceeding until the finalisation of the court proceeding. 26 But by email from ASIC to AGM's solicitors on 10 September 2018, ASIC informed AGM that it was not prepared to stay the AFSL proceeding. Between 13 September 2018 and 20 September 2018, AGM's solicitors and ASIC exchanged "without prejudice" correspondence on this topic. On 21 September 2018, AGM filed the present interlocutory application. 27 On 25 September 2018 I heard the injunction application and reserved my decision until this morning. Inevitably that resulted in the hearing listed for the AFSL proceeding on 26 September 2018 needing to be vacated, with ASIC quite properly agreeing to such a course.

AGM'S CONTENTIONS 28 Perhaps counter-intuitively for those versed in the line of authority conceived in 1908 and begetting Hammond v The Commonwealth (1982) 152 CLR 188, AGM has principally relied upon jurisprudence concerning anti-suit injunctions. But the case law devoted to this area focuses on the existence of competing civil proceedings in a foreign or other domestic court or arbitral body. Nevertheless, the parallel proceeding can encompass a civil proceeding which is an adjunct to a criminal proceeding. It can also encompass for example the taking of depositions pursuant to foreign court orders ancillary to a domestic representative proceeding (Jones v Treasury Wine Estates Ltd (2016) 241 FCR 111 at [23] to [33], [48] and [49] per Gilmour, Foster and Beach JJ). AGM has submitted that it can extend to a proceeding, albeit administrative in character, which seeks to resolve a licensing question between the parties such as the AFSL proceeding. 29 In CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345, the majority recognised two somewhat distinct bases for granting an anti-suit injunction (at 391 to 394). The first basis for granting such relief is the inherent or implied power to protect the integrity of the court's processes once set in motion. So, the court may grant an injunction to restrain a person from commencing or continuing parallel proceedings in another forum if those proceedings interfere with, or have a tendency to interfere with, the proceedings pending in the court. Moreover, such an inherent or implied power to grant anti-suit injunctions is not restricted to defined and closed categories, save for the boundary condition that it may only be exercised when the administration of justice so demands and when necessary for the protection of the court's own proceedings or processes. The second basis invokes equitable jurisdiction to restrain conduct where the bringing of another proceeding involves the unconscientious exercise of legal rights. So, one well established category of case in which an injunction may be granted in the exercise of that jurisdiction is that involving the commencement of parallel proceedings which are vexatious or oppressive. Relatedly, if a party has made an election as to the forum in which it will proceed, equity may intervene to prevent it pursuing proceedings in relation to the same subject matter in another. Generally, it has been said that the limits of the Court's equitable jurisdiction are determined by the dictates of equity and good conscience.

(a) Interference with Court processes 30 AGM contends that ASIC's commencement of the AFSL proceeding constitutes an interference with the processes of this Court. 31 It is said to be appropriate to grant an anti-suit injunction to prevent an attempt to re-litigate the issues already determined by my judgment, and thereby to protect the integrity of the processes of the Court. 32 It is submitted that although anti-suit injunctions usually concern the commencement of parallel foreign curial proceedings, the principle that an anti-suit injunction may issue to restrain the undermining of an earlier judgment by another legal process is directly applicable here. 33 It is said that I should infer that ASIC has commenced the AFSL proceeding because it failed to achieve the outcome it sought in the amended interlocutory process and it is now seeking to achieve the result which eluded it by using the administrative powers vested in it by the Corporations Act. 34 It is asserted that the key vice with this approach is that it undermines my July judgment. It is said that I have found that there was no urgent need to interfere with AGM's affairs pending ASIC's application for final orders. By now seeking to progress the AFSL proceeding, it is submitted that ASIC seeks to in effect paralyse AGM's operations through ASIC's licensing powers rather than to await and abide the final determination of the proceeding before me. 35 It is said that ASIC is seeking to achieve this aim by re-litigating the same essential allegations of contravening conduct by AGM in the AFSL proceeding that it is litigating before me. It is said that this is made apparent by the fact that attachment A to ASIC's Notice of Hearing contains four schedules concerning "case studies" of alleged contravening conduct by AGM, OT and Ozifin, which are identical in substance to annexures B to E to ASIC's written submissions in support of the amended interlocutory process. It is said that the "areas of concern" referred to in the Notice of Hearing substantially overlap with the allegations advanced by ASIC in support of the amended interlocutory process, as illustrated by "ASIC's List of Alleged Contraventions" handed up to me on the hearing of that application. 36 As such, it is said that it is apparent that ASIC is seeking to advance, through the AFSL proceeding, the very same case it advanced for the purposes of the amended interlocutory process, and in substance to re-litigate substantially the same issues for the purposes of achieving the result refused by me, namely, to paralyse AGM's operations. In so doing, it is said that ASIC threatens to undermine the processes of the Court and, in particular, the effect of my July judgment.

(b) Unconscientious exercise of legal rights 37 Further, AGM contends that the commencement of the AFSL proceeding constitutes the unconscientious exercise of legal rights by ASIC. 38 It is submitted that the AFSL proceeding cannot properly be characterised as the performance of a separate and legitimate statutory task. Rather, ASIC's conduct should be characterised as seeking to progress a vexatious and duplicative legal process, after having made an election to invoke the jurisdiction of the Court to determine its allegations of contravening conduct against AGM. 39 It is said that ASIC's election is demonstrated by its prior conduct. It is said to be demonstrated in particular by ASIC pursuing the amended interlocutory process for several months, and by its statements in open court in July that it intended to amend its originating process to seek declaratory relief and, potentially, civil penalties, and that it wanted to progress this proceeding to a final hearing in the latter part of this year. It is said that this conduct should be viewed against the fact that ASIC has, at all relevant times prior to and since the commencement of this proceeding, been empowered to commence the AFSL proceeding, but has chosen not to do so. 40 Now although AGM accepts that the court proceeding does not involve the exercise of a discretion to suspend or cancel AGM's AFSL, it is submitted that complete correspondence between the proceedings is not necessary where there is nothing that may be gained by the AFSL proceeding over and above what may be gained in the court proceeding and thus "complete relief" is available in the court proceeding. Here, if the court proceeding ultimately succeeds, it is submitted that AGM will be wound up and dissolved. In that sense, "complete relief" is, in substance, available in the court proceeding and thus the AFSL proceeding is vexatious and oppressive. 41 Now AGM also made submissions concerning Re Tower Software Engineering Pty Ltd, Re; Pendant Software Pty Ltd v Harwood (2006) 154 FCR 150. In that case, Goldberg J declined to issue an anti-suit injunction to restrain a shareholder who made an application to the Takeovers Panel after court proceedings in relation to overlapping issues which were already on foot. He explained that the task of examining whether there were "unacceptable circumstances" was not a task committed to the court. AGM contends that Re Tower is distinguishable for the following reasons. First, Goldberg J determined the injunction application on the narrow basis of an interference with court processes and was not asked to consider the broader equitable jurisdiction. Second, the circumstances in Re Tower were different. There was not, as here, already an existing judgment of the Court that was at risk of being undermined; there was also not, as here, a very substantial delay in the commencement of the second legal process consistent with an election not to use that process; and there was not, as here, reliance by a regulator on its own administrative powers to pursue substantially similar allegations of contravening conduct in two different arenas. It is said that all of these factors put the present case in a different category to Re Tower. I agree, although his Honour's discussion at [44] is in phase with my analogous discussion from [45] below. But in any event, to so distinguish Re Tower does not entail any positive support for AGM's case thesis. 42 Further, it is said that there is no legitimate purpose to ASIC's pursuit of the AFSL proceeding whilst the court proceeding is pending. To the contrary, it is said that I have already concluded in the July judgment that I do not consider there to be any urgent need to implement any further measures to constrain AGM's business activities pending the winding-up application, despite ASIC's reliance on AGM's alleged breach of statutory obligations relating to its AFSL. It is also said that ASIC's contention that it is seeking to protect the public interest flies in the face of the July judgment. 43 Further, it is said that the belated recourse by ASIC to the AFSL proceeding threatens to give ASIC an unfair forensic advantage at any final hearing in the court proceeding. That is, if ASIC decides in the AFSL proceeding that it ought to cancel AGM's license, then it will have effectively pre-determined a key substratum of facts relevant to the exercise of the Court's jurisdiction, being whether AGM is and should be able to carry on a financial services business. Importantly, it is said that ASIC would be able to achieve this significant forensic advantage for the purposes of its winding-up application without the constraints of the rules of evidence or the burden of proof it has to meet in the court proceeding. It is said that ASIC should not now be permitted to rely on an "informal" administrative process to avoid the burdens of its own court proceeding, including to properly articulate its own case and to meet its onus and standard of proof.

ANALYSIS 44 Now before I deal with the broader legal themes including Hammond, CSR and anti-suit injunctions, with the first of the two bases discussed in CSR partly resonating with the Hammond theme, it is appropriate to deal with various flaws and fallacies in AGM's arguments. 45 First, complete relief is not available in the court proceeding dealing with the AFSL. I have no power to suspend or revoke the AFSL. That is an administrative statutory power for ASIC's exercise only, subject to any judicial review proceedings. Moreover, if I refuse ASIC's application for a winding-up order, the AFSL question will still need to be addressed by ASIC and AGM. Now I accept that in the converse case, were I to wind-up AGM, commercially there may be little need for ASIC to proceed further with the AFSL proceeding. But that is a different question from that usually dealt with in the anti-suit injunction context where one considers whether all relief can be obtained in the proceeding not sought to be enjoined. 46 Second, and relatedly, there can be no question of any election by ASIC constituted by the commencement of the court proceeding for the simple reason that ASIC cannot obtain in the court proceeding what may be able to be achieved as an exercise of statutory power in the AFSL proceeding. 47 Third, let it be accepted that there will be a substantial overlap in the factual issues (and their characterisation as contraventions) in both the AFSL proceeding and the court proceeding. So what? Let it be assumed that there may be a duplication of effort and expense. Where does that go? As far as I am aware any such consideration has never been a sufficient condition to enliven either basis in CSR (TS Production LLC v Drew Pictures Pty Ltd (2008) 172 FCR 433 at [44], [56] and [57] per Gordon J). And in any event, the principal remedies are different. In the court proceeding, the principal relief is the winding-up order. In the AFSL proceeding, the outcome may be the revocation or suspension of the AFSL, a matter I have no power to deal with. 48 Fourth, it is impermissible to align the court proceeding with the AFSL proceeding merely because each may overlap in terms of the determination of common contraventions. I may decide not to wind-up AGM on the "just and equitable" ground notwithstanding the past contraventions; in other words I may look to the present and future management and conduct of AGM. Conversely, ASIC may justify suspending or revoking AGM's AFSL based upon past contraventions and notwithstanding any change in its management or control. As it has said in its Regulatory Guide 98 titled "ASIC's powers to suspend, cancel and vary AFS licences and make banning orders" at [98.41] and [98.42]: We may cancel, suspend or vary an AFS licence even if the licensee has rectified breaches. We may do so to deter the licensee or others from engaging in misconduct. In deciding whether to do so, we will consider, among other things, whether the licensee has been reactive rather than proactive in its approach to compliance. The attitude of an individual licensee to compliance and the organisational culture of a corporate licensee are examples of factors we will take into account when forming a view about whether the licensee has a reactive or proactive compliance approach. A change in the control or the management of a body corporate licensee does not mean that ASIC will disregard the licensee's history of non-compliance. In appropriate circumstances, ASIC may cancel, suspend or vary the licensee's AFS licence even if there is a change in control or in management. This is because even if breaches occurred before the change, those breaches form part of the licensee's compliance history and may remain relevant. 49 Further and generally, my considerations concerning the "just and equitable" ground are considerably broader than the AFSL question. 50 Fifth, my July judgment was an interlocutory judgment and decided nothing concerning whether AGM's AFSL should be suspended or revoked. Moreover, it did not decide anything concerning the contraventions relevant to the AFSL proceeding. Now true it is that I declined to order the appointment of a provisional liquidator, leaving the management of AGM in the hands of its director(s). But that implied nothing concerning whether the AFSL could or should be revoked or suspended. 51 Sixth, it is a fallacy to suggest that ASIC will obtain an unfair forensic advantage at the final hearing before me by pursuing the AFSL proceeding. There are a number of points to make: (a) The AFSL proceeding does not involve any exercise of any co-ercive investigative statutory power. AGM is free to participate or not, and to provide whatever evidence it sees fit. (b) Now admittedly, in the AFSL proceeding ASIC does not have the same onus of proof and standard of proof that it has in the proceeding before me. But this point goes nowhere. It is merely a consequence of the different statutory procedure, being a procedure that cannot be invoked before me. (c) Further, any findings in the AFSL proceeding such as concerning the contraventions will not bind me, save the fact of the AFSL being cancelled or suspended (if that occurs). Now such a fact may be relevant, together with many other factors, in dealing with the "just and equitable" ground. But this is not relevantly an unfair forensic advantage. It is simply an outcome of the separate statutory process entrusted to and invoked by ASIC. Moreover, that invocation and result in no way interferes with the exercise of judicial power. At trial I will consider the facts then known. If a new fact has been created by the AFSL suspension or revocation, so be it. It is of the essence of judicial power to consider that new fact rather than to treat its creation as constituting an interference. 52 Let me now return to some higher level themes. 53 First, I agree with Goldberg J that the appropriate starting point is to consider whether the AFSL proceeding so impinges on the proceeding before me that there is a real risk that the administration of justice will be interfered with (Sage v Australian Securities and Investments Commission [2005] FCA 1043 at [21]). Moreover, as Gibbs CJ explained in Hammond at 196, "(t)he tendency of the proposed actions to interfere with the course of justice must be a practical reality", as opposed to a theoretical tendency. Now in this case, one is not even close to that scenario, particularly given that the AFSL proceeding does not involve any exercise of co-ercive investigative statutory power; and even if it did, that would not provide a sufficient condition in any event (Lee v NSW Crime Commission (2013) 251 CLR 196 at [320], [322] and [335] per Gageler and Keane JJ). 54 Second, in relation to the statutory powers that ASIC is seeking to exercise concerning the AFSL proceeding, none ought be construed as interfering with the exercise of federal judicial power and none is being purported to be so exercised. 55 Third, let me say something further concerning the relevant statutory powers, being principally s 915C and relatedly ss 760A, 911A, 912A and 913B of the Corporations Act and ss 1, 51 and 59 of the Australian Securities and Investments Commission Act 2001 (Cth). 56 In exercising the relevant powers, ASIC must strive to, inter-alia: (a) promote the confident and informed participation of investors and consumers in the financial system (s 1(2)(b) of the ASIC Act and s 760A(a) of the Corporations Act); (b) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it (s 1(2)(g) of the ASIC Act); and (c) to conduct hearings such as that involved in the AFSL proceeding with as much expedition as permissible in context (s 59(1) of the ASIC Act). 57 It is therefore in the public interest that ASIC be free to pursue the procedure stipulated by s 915C of the Corporations Act so that it can consider whether the remedies available under that provision ought to be applied (Vinton Smith Dougall Ltd v Australian Securities Commission (1997) 23 ACSR 567 at 570 per Beach J). Accordingly, compelling reasons are required to enjoin ASIC from performing its legislative function and exercising its powers under that provision, particularly in light of the legislative objects under s 760A. 58 Now ASIC submitted that considerations relevant to determining whether to enjoin ASIC from taking any further step in the AFSL proceeding include: (a) the desirability that any such process proceed to a conclusion expeditiously (see s 59(1) of the ASIC Act); and (b) the costs likely to be borne by AGM in multiple proceedings concerning the same or similar issues. 59 But in my view the latter consideration is to be given lesser weight, absent other relevant considerations, given the inevitability of expense being incurred where the relevant regulatory system includes a licensing regime for participants, and administrative proceedings are necessary to suspend or revoke an AFSL. 60 Now ASIC accepts that the court proceeding and the AFSL proceeding each arise out of the same substratum of facts and involve similar allegations of wrongdoing. But in my view, those considerations do not of themselves support an order enjoining ASIC from pursuing an administrative remedy that is otherwise available to it in the proper discharge of its statutory powers and responsibilities. Moreover, there has been no direct attack made by AGM on the lawfulness of the exercise of the relevant statutory powers or the validity of ASIC's actions save for the tendency to interfere with the proceedings before me. 61 Further, the AFSL proceeding is not an attempt to circumvent the processes of this Court to achieve the same end by a different means. It is pursued in furtherance of ASIC's legitimate objects to ensure confidence in the financial markets. AGM's concerns in that regard rise no higher than mere speculation based on the accepted overlap in allegations raised in the court proceeding and the AFSL proceeding. But those matters give rise to nothing more than at best a remote or theoretical possibility of the AFSL proceeding interfering with the administration of justice in this proceeding. They fall well short of the real risk and practical reality of such an interference that would be needed to support the grant of an injunction of the type sought. 62 Further, as I have said, it is significant that the powers conferred on ASIC by s 915C of the Corporations Act to cancel or suspend AGM's AFSL are not powers available to the Court. 63 Further, any concern regarding the use of material obtained in the AFSL proceeding is misplaced. Whilst ASIC is required to afford AGM the opportunity to appear at a hearing before ASIC and to make submissions (s 915C(4)), it is a matter for AGM whether it participates in that process, and its level of participation. AGM will not be compelled to give any evidence or produce material in the AFSL proceeding. Further, and in any event, it is not entitled to any privilege against self-incrimination or exposure to penalties if it were to participate in the AFSL proceeding. 64 For the above reasons, I would reject AGM's injunction application based on the first basis of CSR and the analogous principle dealt with in Hammond. 65 As to the second basis for the injunction application as discussed in CSR and invoking equitable jurisdiction, I would reject this as well. 66 Notwithstanding the plasticity of equity, there is no basis for asserting that ASIC has acted unconscionably or unconscientiously in invoking the potential exercise of the relevant statutory powers and instituting the AFSL proceeding. It is a separate statutory procedure that only it can invoke. Moreover, it is being invoked in the public interest, which would trump equity in any event. 67 Further, as I have already said, there is no substance to AGM's "election" argument. Moreover, there is no vexation of or oppression caused to AGM by the AFSL proceeding, particularly where I am proposing to grant a temporary stay of the court proceeding potentially for several months to permit the AFSL proceeding to be concluded so that in the short term AGM does not have to fight on two fronts. 68 Finally, AGM floated the theme that the timing of the AFSL proceeding was strategic and almost went so far as to assert a lack of bona fides or improper purpose. I can put such a penny-dreadful narrative to one side as it had no substance.

CONCLUSION 69 In summary, I reject AGM's injunction application. 70 Nevertheless, in the exercise of my case management powers I consider it appropriate to grant a temporary stay of the winding up proceeding against AGM to enable the AFSL proceeding to be concluded, on the assumption that both ASIC and AGM will act expeditiously to have it disposed of. There is no prejudice to the public interest in doing so. AGM is the subject of freezing orders, new management is in place, and any past contraventions appear not to be continuing. Further, the parties do not appear to be ready for a trial before me this year in any event. I propose orders in the terms set out at the outset of these reasons. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

SCHEDULE OF PARTIES VID 126 of 2018 Defendants Sixth Defendant: AUTHENTICATE PTY LTD (ACN 600 573 233)