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[2018] FCA 1070
Federal Court of Australia
2018-07-18
Reeves J
Original judgment source is linked above.
Solicitor for the Applicant: Australian Securities and Investments Commission
Counsel for the Respondents: The Respondents did not appear
23 November 2018 The Orders have been amended to include Orders 3, 4 and 5, definitions and notice under rule 41.06 of the Federal Court Rules 2011 (Cth).
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant
AND: CFS PRIVATE WEALTH PTY LTD ACN 141 584 885 First Respondent
BDM ASIA PACIFIC PTY LTD ACN 127 643 529 (DEREGISTERED) Second Respondent
COMBINED FINANCIAL SOLUTIONS PTY LTD ACN 003 152 378 (and another named in the Schedule) Third Respondent
JUDGE: REEVES J DATE OF ORDER: 21 MAY 2018
INTRODUCTION 1 By an interlocutory application filed along with its originating application on 23 April 2018, the Australian Securities and Investments Commission (ASIC) sought various sets of orders against the respondents, which relevantly included: (a) restraining orders under ss 1101B(5) and 1324(4) of the Corporations Act 2001 (Cth) (the Act); and (b) preservation orders under ss 1323(1) and (3) of the Act. In its subsequent submissions, ASIC also sought to rely on s 23 of the Federal Court of Australia Act 1976 (Cth) for the preservation orders mentioned in [1(b)] above. 2 On 21 May 2018, I made orders broadly in the terms described above. The following are my reasons for making those orders. 3 None of the four respondents appeared when this matter was first called on 10 May 2018. The second respondent's non-appearance is undoubtedly explained by the fact it was deregistered on 13 February 2017. There is no obvious explanation, however, for the non-appearance of the other three respondents. 4 Having regard to the various affidavits filed by ASIC, I am satisfied that Mr Graeme Miller, the fourth respondent, and sole director of the other two registered corporate respondents, was made aware of the hearing date fixed for ASIC's interlocutory application by email on 2 May 2018. Furthermore, I am satisfied that, on 2 May 2018, Mr Miller received a copy of ASIC's written submissions via email, and that on 4 May 2018, the first, third and fourth respondents were served personally with the application and supporting material. Since they had received between six and eight days' notice of the hearing, I considered it was appropriate to proceed with the application in their absence. 5 ASIC read and relied on the following affidavit materials, among others, in support of its application: (a) three affidavits of Ms Jennifer Atkinson, the main one of which was filed on 24 April 2018 - Ms Atkinson is an ASIC investigator and, with others, she has been responsible for ASIC's investigations into the affairs of the four respondents; (c) an affidavit by Ms Georgina Barraclough. Ms Barraclough is also an ASIC investigator and a member of ASIC's Forensic Accounting Services team. She assisted Ms Atkinson with her investigations; (d) affidavits by Mr Gavin Crosbie and Mrs Robyn Crosbie. The Crosbies are self-funded retirees who invested their superannuation savings on Mr Miller's advice.
FACTUAL BACKGROUND 6 The following factual background to this proceeding is evident from those affidavits and the applicant's written submissions. 7 In September 2016, ASIC began investigating suspected contraventions of the Act, the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), the Crimes Act 1900 (NSW) (Crimes Act) and the Queensland Criminal Code (Criminal Code) in relation to the preparation and submission of personal insurance policy applications by Mr Miller and Mr Ian Dale through CFS Private Wealth Pty Ltd, the first respondent, during the period 27 July 2015 to 19 January 2016. 8 CFS Private Wealth is an Australian Financial Services Licence holder under the Act. Mr Miller is one of the responsible managers of CFS Private Wealth and he is currently its sole director and shareholder. 9 Combined Financial Solutions Pty Ltd, the third respondent, is an authorised representative of CFS Private Wealth. Mr Miller is also currently the sole director and shareholder of Combined Financial Solutions. 10 In April 2017, ASIC expanded its investigation to include suspected contraventions of the Act, the Crimes Act and the Criminal Code in relation to the transfer of funds from CFS Private Wealth clients' self-managed superannuation funds to CFS Corporation Pty Ltd (CFS Corporation). 11 CFS Corporation is the original name of a company which was later renamed Go to Super Pty Ltd and then BDM Asia Pacific Pty Ltd, the second respondent. As has been mentioned already, this company was deregistered on 13 February 2017. Mr Miller was formerly a director of CFS Corporation. 12 On 1 September 2017, ASIC's investigation was further expanded to encompass the period commencing from 1 November 2008 and to include the distribution of funds from CFS Corporation to other persons and entities.
THE RESULT OF ASIC'S INVESTIGATIONS 13 ASIC claimed that its investigations revealed that, through CFS Private Wealth, "Mr Miller provided financial services including investment, superannuation and insurance advice to clients. In the case of at least 28 clients, Mr Miller advised them to invest funds through 'CFS' which were deposited into bank accounts in the name of CFS Corporation. The investments were for various terms and generally at an interest rate of 10 percent." ASIC claimed its investigations had revealed that over $4.7 million was deposited into the CFS Corporation accounts by clients over a nine year period. 14 From tracing transactions in CFS Corporation's bank accounts, ASIC claimed they showed that Mr Miller did not, in fact, "invest his clients' monies to generate a return as he had represented he would do, but rather he used the funds for his own personal purposes and to make interest payments to other clients". 15 For example, "Ms Barraclough's affidavit demonstrate[d] that a significant proportion of the monies invested by the Crosbies' superannuation fund was subsequently transferred to the joint bank account of Mr Miller and his wife, to Mr Miller's credit card account, and to [a bank] account in the name of Mr Miller's son". The Crosbies' affidavits deposed to them having invested $950,000 through seven such investments on Mr Miller's advice. 16 Further, Ms Atkinson's affidavit demonstrated that $200,000 of the $225,000 invested on Mr Miller's advice by a Mr and Mrs Crayzer was deposited into the home loan bank account of Mr and Mrs Miller.
THIS PROCEEDING 17 In this proceeding, ASIC claimed that the conduct summarised above evidenced contraventions of s 912A(1)(a), (c) and (ca) of the financial services laws in Chapter 7 of the Act. Those sub-sections provide: A financial services licensee must: (a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and … (c) comply with the financial services laws; and (ca) take reasonable steps to ensure that its representatives comply with the financial services laws; and 18 In its originating application, ASIC sought a series of orders against the respondents with respect to the alleged contraventions and the primary object of this proceeding is to recover whatever portion of the funds associated with these contraventions remains in the control of the respondents.
THE RESTRAINING ORDERS 19 I will deal first with the restraining orders sought by ASIC (see at [1(a)] above). The two provisions of the Act upon which ASIC relied for those orders provide this Court with the statutory power necessary to make the restraining orders sought. Despite their statutory character, I agree with ASIC's contentions, based upon the authorities which it cited, that the principles with respect to the grant of injunctions in the equitable jurisdiction provide guidance in determining this application (see Australian Securities and Investments Commission v Triton Underwriting Insurance Agency (2003) 48 ACSR 249, [2003] NSWSC 1145 at [25]; see also Liquorland (Aust) Pty Ltd v Anghie (2001) 20 ACLC 58, [2001] VSC 362; Humane Society International Inc v Kyodo Senpaku Kaisha Ltd (2006) 154 FCR 425, [2006] FCAFC 116 (Humane Society) at [21]; Community and Public Sector Union v Commonwealth of Australia (2006) 157 IR 470, [2006] FCAFC 176 at [14]-[19]; Australian Communications and Media Authority v Mobilegate Ltd a company incorporated in Hong Kong (2009) 256 ALR 85, [2009] FCA 539 at [13]; and Varley v Varley [2006] NSWSC 1025 at [22]). 20 According to those principles, there are two main interrelated inquiries. ASIC must make out a prima facie case in the sense that it must show that it has a sufficient likelihood of success at trial to justify the grant of the injunction to preserve the status quo. ASIC must also show that the balance of convenience favours that course: see Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, [2006] HCA 46 (O'Neill) at [65]-[72] per Gummow and Hayne JJ (Gleeson CJ and Crennan J agreeing at [19]); Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238, [2011] FCAFC 156 (Samsung) at [57]; and Warner-Lambert Co LLC v Apotex Pty Ltd (2014) 311 ALR 632, [2014] FCAFC 59 at [69]-[70]. 21 As the Full Court observed in Samsung, to establish that there is a prima facie case, ASIC is not necessarily required to demonstrate that its case is, on balance, likely to succeed, but rather the Court has to assess "the strength of the probability of [that] ultimate success". That will vary from case to case, depending "upon the nature of the rights asserted and the practical consequences likely to flow from the grant of the injunction which is sought" (see Samsung at [57] and [59]). 22 In the second but interrelated inquiry, namely the balance of convenience, the Court has to make an assessment of the harm that may be occasioned to ASIC if no injunction is granted and the harm that may be occasioned to the respondents if an injunction is granted and to weigh those two considerations along with any others of relevance (see O'Neill at [65] and Samsung at [62]). The interrelatedness of the two inquiries requires, as well, that the apparent strength of the parties' substantive cases be considered in the light of the balance of convenience considerations just mentioned (Samsung at [67]). 23 With respect to the prima facie inquiry, I am satisfied on the materials I have briefly surveyed above that ASIC has shown that it has a sufficient likelihood of success at the trial of this proceeding to justify the grant of the restraining orders it has sought, in order to preserve the status quo. 24 With respect to the balance of convenience inquiry, ASIC relied upon a number of factors including the following: (a) CFS Private Wealth continued to hold its Australian Financial Services Licence. That is so despite requests made by ASIC of Mr Miller's then lawyer that it voluntarily relinquish it; (b) Mr Miller remained a director of CFS Private Wealth and Combined Financial Solutions; (c) as recently as 30 June 2017, Mr Miller engaged with Mr and Mrs Crosbie as their financial adviser and discussed the realisation of their superannuation investment through CFS; (d) Mrs Crosbie's covert recordings of her conversation with Mr Miller showed that he claimed to have ongoing business interests in the mortgage market in Australia and overseas; (e) Mr Miller acted to cover up his contravening conduct by, for example, asking two of his investor clients, Mr and Mrs Wedderburn, to tell anyone who asked that the money they invested was a personal loan; and (f) the orders sought serve the purposes of the Act, including the protection of the public interest in the prevention of particular conduct. 25 Given their absence from this hearing, no factors were advanced by the respondents. 26 Since ASIC had, in my view, made out a prima facie case that the respondents had contravened the Act and since many of the factors upon which it relied showed that Mr Miller and his corporate vehicles continued to provide financial advice and attract investments from, among others, self-funded retirees, I considered the balance of convenience in this application favoured ASIC. 27 I would add that, if the respondents believed the restraining orders were overly burdensome, or unjust for some reason, that was not immediately apparent, they were afforded the opportunity to agitate those concerns under the liberty to apply provisions which were included in the orders made on 21 May 2018. 28 Having regard to the terms of the draft orders proposed by ASIC, with one alteration, I considered they are appropriate. The alteration was to reduce the notice period in the liberty to apply provisions from three business days to one business day. For these reasons, I made the restraining orders in that amended form.
THE PRESERVATION ORDERS 29 I turn next to the second part of this application, the preservation orders sought by ASIC. As I mentioned earlier, those orders were sought under ss 1323(1) and (3) of the Act and s 23 of the Federal Court Act (see at [1(b)] above). The latter expresses the Court's broad, but not unlimited, power to make such orders as it thinks appropriate. The power is not unlimited because it depends, in the first place, on the Court being vested with the jurisdiction to deal with the matters in contention: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622 per Deane J. 30 Section 1323(3) of the Act provides as follows: Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application. This subsection expresses the Court's power to make an interim order "being an order of the kind applied for" pending its determination of an application for an order under s 1323(1). 31 Section 1323(1) 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) 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: (d) an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed; (e) an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held; (f) an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person; (g) an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person: (i) from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or (ii) from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia); (h) an order appointing: (i) if the relevant person is a natural person - a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or (ii) if the relevant person is a body corporate - a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person; (j) if the relevant person is a natural person - an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit; (k) if the relevant person is a natural person - an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court. 32 It can be seen that this subsection prescribes a list of particular orders the Court may make if one of the circumstances in ss 1323(1)(a) to (c) exists and if the Court "considers it necessary or desirable to do so for the purpose of protecting the interests of … [an aggrieved person] to whom the person referred to in [one of the aforementioned paragraphs] … is … or may be or become liable, to pay money". 33 In Re Richstar Enterprises Pty Ltd (ACN 099 071 968); Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577; [2006] FCA 433, French J described how these provisions operated as follows (at [25]-[27]): [25] The orders that can be made under the section are directed, inter alia, to the preservation of assets against which recovery may be sought in the event that liability to an "aggrieved person" is established on the part of a "relevant person". The orders are made in circumstances where "an investigation is being carried out", "a prosecution has been begun" or "a civil proceeding has been begun". That is to say the orders can be made before liability is established and indeed before the evidence necessary to establish liability has been collected. While an application under the section is not interlocutory in an existing criminal or civil proceeding, it is interlocutory in a wider sense. It preserves the status quo and the assets of the relevant person pending the outcome of the investigation, prosecution or civil proceedings which are on foot - Corporate Affairs Commission v Lone Star Exploration NL (No 2) at SASR 30; ACLR 504. At the stage an order is sought the court may not be in a position to identify with precision any particular liability owed by the person the subject of the proposed order. This consideration applies to final orders made under the section as well as to interim orders for which it expressly provides in s 1323(3). The final orders made under the section are necessarily of a temporary or holding character rather than finally disposing of the rights and liabilities of the relevant persons affected by them. [26] The circumstances in which the court may make orders under s 1323(1) are wide as indicated by the words "necessary or desirable … for the purpose of protecting the interests of a person …". There is an element of risk assessment and risk management in the judgment the court is called on to make. It follows, and has been accepted, that there is no requirement on the part of ASIC to demonstrate 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 - Corporate Affairs Commission v ASC Timber Pty Ltd (1989) 7 ACLC 467 at 476 (Powell J); Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266 ; [2001] NSWSC 451 at [7] (Santow J). [27] The nature and duration of orders made under s 1323(1) can be fashioned by the court to reflect its assessment of any risk of dissipation of the assets of a person under investigation. But their legitimate purposes can go further. The interests of aggrieved persons may be protected not only by orders designed to protect dissipation of assets, but also by orders which create an opportunity for the assets of the person under investigation to be ascertained. 34 Applying these observations to the present application, the existence of ASIC's investigation described earlier and the commencement of this proceeding comprise at least two of the qualifying circumstances prescribed by s 1323(1). Next, based on the materials I have referred to earlier in these reasons, I considered ASIC had identified a number of persons who were "aggrieved" within the terms of that expression in s 1323(1). They included Mr and Mrs Crosbie and Mr and Mrs Crayzer. The question then was whether it was "appropriate" (s 23 of the Federal Court Act) and/or "necessary or desirable" (s 1323(1) of the Act) to make the particular orders ASIC sought. Those orders were as follows: 1. Subject to the terms of paragraph 2 below, pursuant to sections 1323(1) and 1323(3) of the Corporations Act, until further order, each of the respondents, by themselves and their servants, agents and employees be restrained from: (a) removing, or causing or permitting to be removed from Australia all or any of the Property of any of the respondents; (b) selling, charging, mortgaging or otherwise dealing with, disposing of and/or diminishing the value of all or any of the Property of any of the respondents; (c) causing or permitting to be sold, charged, mortgaged or otherwise dealt with, disposed of, or diminished in value, all or any of the Property of any of the respondents; (d) without limiting the terms of sub-paragraphs (a) to (c) above, incurring new liabilities including, without limitation, liabilities incurred either directly or indirectly, through the use of a credit card, a credit facility, a drawdown facility or a re-draw facility; and (e) without limiting the terms of sub-paragraphs (a) to (d) above, withdrawing, transferring or otherwise disposing of or dealing with, any monies available in any account with any bank, building society or other financial institution (in Australia and elsewhere), in which the respondents have any legal or equitable interest. 2. The orders in paragraph 1 shall not prevent: (a) the fourth respondent from paying or otherwise incurring a liability for ordinary living and operating expenses up to $1,000 per week; (b) each of the respondents from paying or otherwise incurring a liability for costs reasonably incurred in these proceedings and any criminal proceedings arising from the applicant's investigation into the affairs of each of the respondents; and (c) any bank, building society or financial institution from exercising any right of set-off which it may have in respect of a facility afforded by it to each or any of the respondents prior to the date of this order. … 35 ASIC correctly contended that order 1(a) fell within the terms of s 1323(1)(g). That order aside, ASIC acknowledged that orders 1(b) to (e) did not correspond to any of the forms of order listed in s 1323(1)(d) to (k). Instead, it sought to rely upon s 23 of the Federal Court Act as expressing the Court's power to make those orders. 36 In Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92; [2007] FCA 310 (Carey), after noting (at [29]) that s 1323 "does not provide for a general freezing order", French J went on to consider whether s 23 of the Federal Court Act bestowed such a power on the Court. After noting the analogous jurisdiction conferred on the Court by s 39B(1) of the Judiciary Act 1903 (Cth) and considering a number of authorities (at [30]-[32]), his Honour concluded (at [33]) that: Consistent with the approach which appears to have been adopted by the High Court in the s 75(v) cases, and bearing in mind what was said in Cardile 198 CLR 380, I accept that where, in an application under s 1323, the grounds for the appointment of receivers are made out, then a lesser order restricting or prohibiting dealings with the relevant property may be made instead. While s 1323 sets out the specific orders which may be made on an application brought under it, it does not, in my opinion, provide an exhaustive code of remedies to the extent that the power to appoint receivers excludes the lesser alternative of orders restricting or prohibiting dealings with the subject property. It may be, for example, that the appointment of receivers would be necessary or desirable to protect the interests of a potential claimant against the property of the company or individual to which the receivers are to be appointed. At the same time, such an appointment might inflict significant damage on an ongoing business which is detrimental to that business and perhaps also to third parties. In that event a lesser order freezing or limiting dealings with the subject property could be regarded as an exercise of the power under s 23. 37 His Honour went on to observe (at [34]) that, in this respect, s 23 of the Federal Court Act did not confer jurisdiction, but rather conferred power on the Court to make orders in the exercise of its jurisdiction. Similar observations were made by Santow J in Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266; [2001] NSWSC 451 (Adler) at [7]. The judgment in Carey was followed by McDougall J in Australian Securities and Investments Commission v Krecichwost (2007) 213 FLR 314; [2007] NSWSC 948 (Krecichwost) at [22]-[39] and by Black J in In the matter of Courtenay House Capital Trading Group Pty Ltd [2017] NSWSC 467 at [10]. 38 In Australian Securities and Investments Commission v Ostrava Equities Pty Ltd (2015) 106 ACSR 332; [2015] FCA 425, Davies J set aside a freezing order that had been made under s 1323 on the basis that the Court did not have the power to make such a freezing order under s 1323(3) of the Act. In coming to that conclusion, her Honour referred to a number of authorities, including Carey and Krecichwost, and stated at [11]: The cases support the proposition that orders in the nature of freezing orders can only be made once the Court is satisfied that it is necessary or desirable that receivers be appointed to the property of the relevant person with the purpose of protecting the interests of aggrieved persons against the property of the company or individual to which the receivers are to be appointed. In other words, the grounds for the appointment of receivers must be made out and, only if made out, then freezing orders restricting or prohibiting dealings with the relevant property may be made instead of the appointment of a receiver … 39 As I read these authorities, if the grounds for the appointment of a receiver under s 1323(1)(h) are made out, the Court has the power under s 23 of the Federal Court Act to make a general freezing order instead of ordering the appointment of a receiver. In this matter, the question therefore was whether ASIC had made out the grounds for the appointment of a receiver. 40 In Adler, Santow J described such an order as "the most intrusive order that could be made" (at [7(b)]). His Honour went on to add that: Appointment of a receiver over a person's assets is in any circumstances an extraordinary step for the court to take, though it may be justified when associated with the allegation of misappropriation of property, particularly, though not necessarily exclusively, fraudulent. 41 Having regard to the evidence which is summarised above and the observations of French J in Carey about the need to undertake a risk assessment and management with respect to the dissipation of assets, I considered the present case was one where such an extraordinary step of appointing a receiver was warranted. That being so, I considered the Court had the power, instead, to make a general freezing order in the terms sought by ASIC. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.
SCHEDULE OF PARTIES QUD 255 of 2018 Respondents Fourth Respondent: GRAEME WALTER MILLER
Australian Securities and Investments Commission
CFS Private Wealth Pty Ltd
[2001] VSC 362
(2006) 227 CLR 57
(2009) 256 ALR 85
(2007) 158 FCR 92
(2007) 213 FLR 314
(2006) 157 IR 470
(2006) 154 FCR 425
(1987) 162 CLR 612
(2006) 232 ALR 577
(2011) 217 FCR 238
(2014) 311 ALR 632
[2006] HCA 46