From January 2006 to July 2006 the first, second, third, fourth and fifth defendants contravened s 601ED(5) of the Corporations Act 2001 (Cth) by operating the unregistered managed investment scheme defined in the Schedule to this Order ("the scheme") which required registration as a managed investment scheme but was not so registered.
From January 2006 to July 2006 the first, second, third, fourth and fifth defendants contravened s 911A of the Corporations Act 2001 (Cth) by carrying on a financial services business in this jurisdiction by offering interests in the scheme without holding an Australian financial services licence.
THE COURT ORDERS THAT:
Pursuant to s 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be permanently restrained whether by himself, his servants or agents or otherwise from further operating or promoting the scheme.
Pursuant to ss 1101B and 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be permanently restrained whether by himself, his servants or agents or otherwise from:
(a) carrying on any business related to, concerning or directed to be a managed investment scheme within the meaning of the Corporations Act 2001 (Cth);
(b) being in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Corporations Act 2001 (Cth);
that requires, in any case, registration under s 601ED of the Corporations Act 2001 (Cth) and has not been so registered.
Pursuant to ss 1101B and 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be restrained, whether by himself, his servants or agents or otherwise from carrying on business in relation to financial products or financial services by:
(a) providing financial product advice;
(b) dealing in financial products;
without holding an Australian financial services licence.
The scheme be wound up pursuant to s 601EE(1) of the Corporations Act 2001 (Cth).
Pursuant to s 601EE(2) George Georges and Adrian Brown (who were appointed receivers of the property of the scheme and to report on the scheme by Order of Justice Young made 20 July 2006) be appointed joint and several liquidators of the scheme.
The liquidators have the power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the scheme, or incidental to the attainment of the winding up of the scheme, including the powers identified in s 477 of the Corporations Act 2001 (Cth) as each reference there to a "company" were a reference to the scheme.
The reasonable costs and expenses of the winding up of the scheme be paid out of the assets of the scheme.
To the extent that the sum paid to the liquidators under Order 7 is insufficient to meet the reasonable remuneration, costs fees and expenses of the liquidators, any shortfall is to be paid by the fifth defendant.
Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) the first, second, third and fourth defendants be wound up and that George Georges and Adrian Brown be appointed joint and several liquidators.
The restraining orders extended by Order made on 19 December 2006 (and originally made by paragraphs 11 and 12 of the Orders made on 20 July 2006) against the fifth, sixth and seventh defendants be vacated.
Paragraph 4 of the Order made on 17 July 2006, that the fifth to seventh defendants deliver up their passports, be vacated and the Registry make any passport delivered up in accordance with the order available for collection by the relevant defendant at the registry office where it is presently held.
The fifth defendant deliver his passport to his trustee in bankruptcy forthwith, pursuant to s 77(1)(a)(ii) of the Bankruptcy Act 1966 (Cth).
The fifth defendant not leave Australia during the period of his bankruptcy until 7 days after he has given ASIC written notice of his request to his trustee in bankruptcy for consent to leave Australia pursuant to s 272(1)(c) of the Bankruptcy Act 1966 (Cth).
The fifth defendant pay the plaintiff's costs of this proceeding including reserved costs.
The proceeding be dismissed against the sixth and seventh defendants with no order as to costs.
The proceeding otherwise be dismissed.
SCHEDULE
The "scheme" is the "FUELbanc" scheme pursuant to which:
Investors give money and barter units known as "trade dollars" to the first defendant in exchange for a promise to pay weekly instalments into a debit card for use by each investor at service stations.
The first to fifth defendants invested or were to invest the money and barter units received from investors to produce the benefit of the credit to be provided on debit cards.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
[2]
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
[3]
AND: FUELBANC AUSTRALIA LIMITED & ORS (according to the Schedule attached)
[4]
REASONS FOR JUDGMENT
1 The Australian Securities and Investments Commission (ASIC) seeks an order under the Corporations Act 2001 (Cth) for the winding-up of an unregistered managed investment scheme known as "FUELbanc" as well as declarations, injunctions and various ancillary orders.
2 The first to fourth defendants respectively are companies FUELbanc Australia Limited (a company limited by guarantee), PayCards Global Pty Ltd, Paycards Investments Pty Ltd and PC Property Group Pty Ltd.
3 By order of Young J in this Court on 20 July 2006 Messrs Adrian Brown and George Georges were appointed receivers of all the property of the scheme and provisional liquidators of the first to fourth defendants.
4 The fifth defendant Stephen McDougall was the moving force behind the FUELbanc scheme. His sons Messrs Timothy McDougall and Matthew McDougall, the sixth and seventh defendants, were also involved but to a lesser extent.
5 The orders sought by ASIC are not opposed.
[5]
The FUELbanc scheme
6 Stephen McDougall earlier devised and operated a scheme known as "FullTank" which was wound up as an unregistered managed investment scheme by order of Young J on 20 April 2006: Australian Securities and Investments Commission v McDougall (2006) 229 ALR 158.
7 Under the FullTank scheme participants would pay a flat "Membership Fee" and a "Plan Fee". They were issued with a debit card which could be used to purchase fuel and other goods at service stations through the EFTPOS system. The debit card would be loaded each week with a nominated amount for purchases. The promise held out was that over a given period participants could receive an effective discount of 50 per cent. For example, for a Plan Fee of $250 the participant was promised $25 worth of fuel per week for 20 weeks.
8 The FUELbanc scheme also involves debit cards issued for the purchase of fuel. Its distinguishing feature, however, is the use of a barter system known as "E Banc" in which goods and services are exchanged for barter units known as "trade dollars" as well as ordinary Australian currency. E Banc is operated by E Banc Trade Pty Ltd. That company is not connected with the defendants and is not involved in the present proceeding. E Banc maintains a central register where its members' barter units and balances and unit transfers are recorded.
9 Under the FUELbanc scheme, participants stipulate a "weekly fuel requirement" in dollars and pay the total amount, either 26 times or 52 times the weekly amount, half in cash and half in E Banc "trade dollars", in addition to a "joining" or "setup" fee of $99. It is stated that the participant must become a member of FUELbanc.
10 In return, FUELbanc promises to pay each Sunday the weekly amount into a debit card for use by the participant at service stations.
11 The debit card is provided by an unrelated company called E-Merchants Australia Pty Ltd which holds the necessary Australian Financial Services Licence for dealing in credit cards and has appointed FUELbanc as its Authorised Agent for that limited purpose
12 The website on which the FUELbanc scheme is promoted states that FUELbanc lends both the Australian dollars and the "trade dollars" to PayCards Global and that FUELbanc's ability to meet its instalment obligations to participants is dependant on those loans being repaid.
13 In fact, as ASIC's investigations have revealed, what has happened with participants' money is very different.
14 Stephen McDougall's idea was that the cash contribution (or at least some of it) would be invested with Paycards Investments outside Australia to produce the return necessary to fund the crediting of participants' debit cards. This would require a return of more than 100 per cent.
15 Investigations by Ms Sonia Kohary, a Financial Investigator employed by ASIC, revealed the following as at 14 July 2006:
· Of $640,000 received by FUELbanc from participants, 46 per cent ($310,000) has been transferred to PayCards Global of which only $11,000 has been identified as being repaid; 38 per cent ($243,000) has been paid directly to E-Merchants. Therefore FUELbanc has been relying on the ongoing deposit of new participants' funds to meet its obligations to existing participants;
· PayCards Global received approximately $439,000 (including the transfer of $310,600 from FUELbanc). Over 58 per cent of funds disbursed ($257,000) are part of 317 transactions of less than $6000 each to unidentified accounts. The books of PayCards Global indicate that some of these funds totalling approximately $133,000 have been distributed for the benefit of the directors or their related parties;
· PayCards Global has only transferred some $80,000 to Paycards Investments. Of this $80,000, approximately $63,000 has been transferred offshore for investment in gold coin bullion. Paycards Investments have only returned $36,700 to PayCards Global;
· As at 31 May 2006 there was less than $45,000 in total in the bank accounts of FUELbanc, Paycards Investments, PayCards Global and PC Property Group.
16 Some "trade dollars" have been used to pay part of the purchase price of real estate brought by Stephen McDougall. He claims that this purchase was for Paycards Investments but the transaction appears to play no part in funding debit cards.
17 In substance the credits available to participants on their debit cards were funded from participants' contributions.
18 Scheme funds have been used for the McDougalls' own purposes such as the leasing of motor vehicles for themselves and friends.
19 As at 14 July 2006, according to Mr Andrew Price, an ASIC Senior Investigator holding delegated functions and powers under Pt 3 of the Australian Securities and Investments Commission Act 2001 (Cth):
· Since its launch in early 2006 the FUELbanc scheme had attracted some 720 participants and continues to draw about 20 new participants each week;
· Participants had contributed $650,000 and 700,000 "trade dollars";
· FUELbanc's weekly commitments to participants was $59,000 and that figure was growing each week;
· PayCards Global's costs were $5,000 to $6,000 per week.
20 The McDougalls could not tell ASIC where most of the FUELbanc money had gone, except that Stephen McDougall said it was invested offshore in unspecified high yield programs on the internet. He estimated that there was approximately just under $1 million invested generating returns of 5 to 20 per cent per month. He said that information as to theses investments had been kept from other directors as it was his responsibility to protect what he described as his "intellectual property".
21 In Mr Price's opinion, the FUELbanc scheme may be a Ponzi scheme. Taking its name from the famous American fraudster Carlo Ponzi (1882-1949) and his postal coupon scam of 1920, a Ponzi scheme is one where deposits of new participants are relied on to make payments to existing participants.
22 According to Stephen McDougall, the scheme needed to generate returns of 3 per cent per week or 160 per cent per annum to be able to meet its weekly commitments to members. In fact, ASIC says, the required return for FUELbanc to be able to meet its weekly commitments to participants without relying on the contributions of new participants is between 375 per cent per annum and 1980 per cent per annum.
23 Stephen McDougall has not candidly revealed in a way that can be confidently corroborated what he has done with scheme funds and ASIC has not been able to locate them.
[6]
Contraventions: Unregistered Managed Investment Scheme
24 Relevantly, s 9 of the Corporations Act defines a "managed investment scheme" as a scheme that has the following features:
"(a) (i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)."
25 The definition in pars (c) to (n) excludes various entities, funds or schemes from the scope of this definition. It will not be necessary to say anything about any of these except for
"(d) a body corporate …"
26 Section 601ED(1)(a) provides that a managed investment scheme must be registered under s 601EB if it has more than 20 members.
27 Section 601ED(5) provides that a person must not "operate in this jurisdiction" a managed investment scheme that is required to be registered under s 601EB unless the scheme is so registered.
28 Section 601EE(1)(a) provides that if a person operates a managed investment scheme in contravention of s 601ED(5), ASIC may apply to the Court to have the scheme wound up. Under s 601EE(2), in the event that ASIC makes an application of the kind described in subs (1) the Court may make any orders that it considers appropriate for the winding up of the scheme
29 The FUELbanc scheme is a managed investment scheme within the meaning of the definition in s 9. Participants contribute money and money's worth as consideration to acquire rights to benefits produced by the scheme namely the FUELbanc debit card and the rights and benefits which come with it. Those contributions are pooled or used in a common enterprise to produce financial benefits for the members who hold interests in the scheme. The participants do not have day-to-day control over the operation of the scheme.
30 The scheme required registration under s 601ED(1)(a) because it had more than 20 members. The scheme has not been registered.
31 The defendants have been operating the scheme in contravention of s 601ED(5). The corporate defendants were integral to the planned cycle of solicitation, investment and distribution of scheme funds. Stephen McDougall was also the directing and guiding mind of the corporate defendants and the scheme as a whole.
32 The "body corporate" exception (see [25] above) does not apply. The purpose of this exception is to ensure that the ordinary engagement of a company in commercial activities does not come within the managed investment scheme regime. The contract created by a company's constitution (see now Corporations Act s 140(1)) only affords rights or imposes obligations on a member in his or her capacity as a member: Hickman v Kent or Romney Marsh Sheep Breeders' Association [1915] 1 Ch 881 at 897. The essence of the FUELbanc scheme is that a participant provides "trade dollars" and cash in return for a promise to provide credit for the purchase of fuel over a future period. The legal foundation for this arrangement is not membership of the company but the contractual relationship between the company and the participant. Relevantly for present purposes, the participant becomes a member of the scheme whether or not he or she becomes a member of the company. (In any event, ASIC has been unable to discover any membership registers, minutes or other records which might prove that participants in fact became members.)
[7]
Contraventions: Financial Services Business
33 Section 763B of the Corporations Act provides:
"For the purposes of this Chapter [ie Chapter 7 - Financial Services and Markets], a person (the investor) makes a financial investment if:
(a) the investor gives money or money's worth (the contribution) to another person and any of the following apply:
(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;
(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);
(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and
(b) the investor has no day-to-day control over the use of the contribution to generate the return or benefit."
34 Participants in the FUELbanc scheme are making a "financial investment" within the meaning of s 763B because they give money to FUELbanc which uses the contribution to generate a financial return or other benefit for the participant. The participant intends that FUELbanc will use the contribution to generate a financial return or other benefit for him or her and FUELbanc intends that the contribution will be used to generate a financial return or other benefit for the participants. In all these respects the contribution is caught even if no return or benefit is in fact generated.
35 The FUELbanc scheme is a "financial product" because it is a facility through which participants make a financial investment: s 763A(1)(a).
36 FUELbanc is the "issuer" of that product because it is the person responsible for the obligations owed to the "client" (the participant) under the terms of the facility that is the financial product: s 761E(4)(a).
37 Because FUELbanc is issuing a financial product it is "dealing" in that product: s 766C(1)(b).
38 Because FUELbanc is dealing in a financial product it is "provid(ing) a financial service": s 766A(1)(b).
39 FUELbanc is therefore carrying on a "financial services business" within the meaning of s 761A and must hold an Australian financial services licence to do so: s 911A(1).
40 No defendant holds an Australian financial services licence.
[8]
Liability of Stephen McDougall
41 ASIC seeks orders against Stephen McDougall but not against Timothy and Matthew McDougall. Against the latter two defendants the order sought is that the proceeding be dismissed with no order as to costs.
42 In respect of the FUELbanc unregistered managed investment scheme, was Stephen McDougall a person "operat(ing)" the scheme within the meaning of s 601EE? As Davies AJ said in Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at [55]:
"The term [operate] is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme."
43 This passage was applied in Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488 at [32]and in McDougall at [34].
44 Here there is no doubt that Stephen McDougall formulated the scheme and managed its day to day operations. He was thus one of those operating the scheme.
45 As to Stephen McDougall's liability for carrying on a financial services business without a licence, the same reasoning applies. In any event he would clearly have aided, abetted, counselled and procured FUELbanc to contravene the Act: s 1324(1)(c).
[9]
Declarations
46 ASIC seeks declarations that:
From January 2006 to July 2006 the first, second, third, fourth and fifth defendants contravened s 601ED(5) of the Corporations Act 2001 (Cth) by operating the unregistered managed investment scheme defined in the Schedule to this Order ("the scheme") which required registration as a managed investment scheme but was not so registered.
From January 2006 to July 2006 the first, second, third, fourth and fifth defendants contravened s 911A of the Corporations Act 2001 (Cth) by carrying on a financial services business in this jurisdiction by offering interests in the scheme without holding an Australian financial services licence.
47 Although, as I have already noted, the orders sought by ASIC were not opposed, Mr Scott very properly drew my attention to the decision of Fryberg J of the Supreme Court of Queensland in Australian Securities and Investments Commission v Intertax Holdings [2006] QSC 276, a case which also concerned an unregistered managed investment scheme. His Honour declined to make a declaration against two individuals involved on the ground that the possibility of a prosecution was open and ASIC had refused to give any undertaking that prosecution would not follow. His Honour said (at [4]):
"Where the possibility of the prosecution is open, it would, in my judgment, be contrary to the ordinary practice for the authority of this Court to be given to a declaration which, in substance, amounted to a declaration that the defendant had committed a crime. One should not make a declaration which might be falsified by a subsequent acquittal in proceedings between the same parties."
In the present case ASIC does not rule out the possibility of future criminal proceedings against the defendants.
48 The jurisdiction of the Federal Court to make declarations is founded in s 21(1) of the Federal Court of Australia Act 1976 (Cth) which provides:
"The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed."
As a superior court, the Federal Court would also have inherent power to grant declaratory relief: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581.
49 Section 21(1) has as its ancestor O XXV r 5 of the Rules of the Supreme Court 1883 (Eng) which developed from the first English legislative provision, s 50 of the Chancery Procedure Act 1852 (UK): see Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 108-109 per Hill J. Although prior to the English legislation mentioned courts of that country had a "deep suspicion" of the declaration of right (Zamir and Woolf The Declaratory Judgment, second edition, 1993, at 11), it seems as though this reluctance only extended to the grant of "pure" declaratory relief. Thus in Clough v Ratcliff (1847) 1 De G & Sm 164 at 178 Knight Bruce V-C said:
"Nakedly to declare a right, without doing or directing anything else relating to the right, does not, I conceive, belong to the functions of this Court [of Chancery]."
50 In the present case, the proposed declarations are not "pure", abstract or hypothetical. They simply record, in a formal way, the conclusion which the Court has reached, on the evidence, as to the legal consequences of specific conduct of the defendants. The effect on any future hypothetical criminal prosecution would be the same whether this Court now granted declarations together with injunctions or granted injunctions only. Either way there would be a finding of a court as to the lawfulness of the conduct the subject of the criminal proceeding.
51 While courts are still reluctant to grant declaratory relief on issues which are theoretical or hypothetical (see Zamir and Woolf, op cit, 117 et seq), the Intertax argument against the grant of declaratory relief is based on a hypothetical fact, indeed a hypothesis upon a hypothesis - that there will be a prosecution and that such prosecution will result in an acquittal.
52 There is high authority against the supposed limitation on the exercise of the discretionary power to grant declaratory relief. In Sankey v Whitlam (1978) 142 CLR 1 the High Court, in respect of then current committal proceedings (ie actual, not hypothetical, criminal proceedings) made declarations that (i) certain documents were privileged from production and that (ii) the information laid against Mr Whitlam was bad in law. Gibbs ACJ said at 20-21:
"It is well established that the power of the court to make a declaration, under a provision such as s 75 of the Supreme Court Act 1970 (N.S.W.), as amended, or O. 26, r. 19 of the Rules of this Court, is a very wide one: Forster v. Jododex Aust. Pty. Ltd. (1972) 127 CLR 421, at pp 435-436 . It is clear enough that the power of the court is not excluded because the matter as to which a declaration is sought may fall for decision in criminal proceedings. Indeed in Dyson v. Attorney-General [1911] 1 KB 410, which is one of the foundations of the law on this subject, it was held that the court had power to make a declaration that the plaintiff was not under any obligation to comply with the requisitions contained in a notice sent to him by the Commissioners of Inland Revenue, notwithstanding that neglect to comply with the notice was an offence - see especially per Farwell L.J. [1911]1 KB, at p 422. Since that time there have been many cases in which the courts have made declarations in relation to questions which could have fallen for decision in criminal proceedings."
53 Of direct application to the present case is Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121. The case concerned a pine plantation investment scheme which the Corporate Affairs Commission (NSW) alleged involved the issuing or offering of an "interest" contrary to s 76(1) of the Companies Act 1961 (NSW). The trial judge made a declaration to the effect alleged and granted injunctions. The Court of Appeal dismissed the appeal but said that it was not a proper case for the grant of declarations, which were "little more than prefatory averments to the grant of an injunction". The High Court dismissed the substantive appeal. The parties accepted that an injunction was no longer necessary since the conduct in question was not continuing. The High Court nevertheless granted a declaration substantially to the effect of that granted by the trial judge.
54 The contraventions the subject of the declaration in Australian Softwood carried criminal penalties: Companies Act, s 86(1). Murphy J thought this was a positive reason for the grant of a declaration. Certainly his Honour saw the possibility, indeed desirability, of criminal proceedings as no reason for refusing a declaration. His Honour commenced his judgment as follows at (136):
"One of the most widespread and successful of the species of fraud known in Australia and elsewhere as 'the investment racket' is the forest or plantation variety."
Later (at 137) his Honour said that the appellant
" … has already procured signatures and acceptances from more than 4000 persons. This represents more than $200,000 in deposits and promises to pay instalments of well over a million dollars. Presumably all those who have been party to offences against the Companies Act in relation to the issues are liable to criminal proceedings, at least with the consent of the Minister (see s 381). In these circumstances, and because the respondent did not press in this Court for the injunction, I agree the relief should be confined to appropriate declarations."
55 In Intertax Fryberg J (at [8]) distinguished Australian Softwood on the ground that the High Court's approval
"… was to the proposition that a declaration could be granted notwithstanding that an injunction would not be granted."
If by this his Honour meant that the High Court only granted a declaration because, with the consent of the parties, they did not grant an injunction, then I do not agree. Gibbs CJ said (at 125):
"With all respect, Hutley JA was not correct in saying that declarations 'are little more than prefatory averments to the grant of an injunction'. In my opinion it was proper to grant a declaration in the present case although it is now agreed that an injunction is not an appropriate remedy."
In any case, if it were only appropriate to make declarations where injunctions were not granted, that would not get over the supposed problem of possible "falsification" by subsequent acquittal in criminal proceedings.
56 In Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 Young J gave detailed consideration to the appropriateness of declarations in respect of breaches of the Companies (New South Wales) Code dealing with prescribed interests and offers to the public. Criminal proceedings were not only possible; they had taken place and the individual primarily involved had been convicted and was serving a term of imprisonment.
57 His Honour observed (at 603) that while ordinarily a declaration is not made that a defendant has committed a crime, there was no doubt that there was jurisdiction to make such a declaration in a proper case: Imperial Tobacco Limited v Attorney-General [1981] AC 718 at 750, Sankey v Whitlam. Thus it was appropriate in many cases for a business person who is told by a regulatory authority that he or she cannot do something to apply for a declaration that the view is erroneous. Conversely, the right was mutual; the Crown could also obtain a declaration that the person's conduct contravened the law. That practice, which was common in New South Wales, had been given the "seal of approval" by the High Court in Australian Softwood.
58 In the particular circumstances of the case, however, Young J (at 616) saw no utility in pronouncing declarations. The injunctions already made dealt with the issues between the parties, the receivership orders were still in place and the making of a declaration would be unsatisfactory because of the possibly incomplete factual material before the court and also because it might embarrass investors' claims. This latter aspect included the fact that investors had subscribed to at least eleven different schemes, the funds of which had become irretrievably mixed.
59 Transphere does not provide any support for the limitation of the discretion to make declarations in cases like the present; indeed it is to the contrary.
60 A number of courts have made declarations in cases involving contraventions which carried criminal penalties, albeit with no express discussion of the point raised in Intertax. Nevertheless, the consistent practice is a matter of considerable weight. The cases are: Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd [2006] QCA 540 (Queensland Court of Appeal), Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 (Hargrave J, Supreme Court of Victoria), McDougall (Young J, Federal Court), Australian Securities and Investments Commission v Preston [2005] FCA 1805 (Finkelstein J, Federal Court), Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 68 (Jones J, Supreme Court of Queensland), Australian Securities and Investments Commission v Young (2003) 21 ACLC 655 (Muir J, Supreme Court of Queensland), Pegasus (Davies AJ, Supreme Court of New South Wales), Australian Securities and Investments Commission v Hutchings (2001) 19 ACLC 1454 (Windeyer J, Supreme Court New South Wales), Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 (Austin J, Supreme Court of New South Wales).
61 I conclude that I should not follow Intertax. It is appropriate to make the declarations sought. It is sometimes said that a declaration is an appropriate way of marking the Court's disapproval of the contravening conduct: see eg McDougall at [55]. While certainly the conduct of the corporate defendants and Stephen McDougall has been reprehensible, the actual declarations do no more than declare the bare facts that the defendants operated an unregistered managed investment scheme and carried on a financial services business without a licence. The declarations would be equally appropriate if the defendants' business had been carried on with exemplary prudence and meticulous bookkeeping. A more satisfactory rationale may be that the right declared will be a public right. In Tobacco Institute (at 98) Sheppard J said that the declaration in that case would
" … be a declaration of right because the right which will be declared will be a public right, namely, the right of the public not to be misled or deceived by factual statements in an advertisement concerning the effects of passive smoking."
In the present case the legislation contravened protects public rights by regulating the conduct of those who seek investment from the public. Declarations as to the contraventions provide a formal vindication of the law's operation.
62 Two final points. First, declarations will not usually be made when the only material before the Court is the consent of the parties: BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401 at 412. As will have been apparent, in the present case ASIC has presented evidence and submissions.
63 Secondly, it is said there must be "a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought": Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448, Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 at 437, Transphere at 605.
64 In the present case the defendants were represented but did not oppose the making of the declarations sought, or indeed any orders sought. Transphere is to an extent comparable in that the defendant in that case appeared and did not oppose the declaration. However, he we not legally represented. Young J (at 605-608) extensively reviewed the case law. His Honour (at 608) accepted the submission that the law as to declaratory judgments had developed to such a stage that declaration should be made unless there are proper grounds to the contrary, subject to the proviso that a "legitimate and powerful" factor against the grant would be the possibility of embarrassment in a practical sense to a non-party. As has been noted ([58] above) his Honour found that in the circumstances of the case before him such embarrassment did exist and on that ground declined a declaration.
65 One of the authorities discussed by Young J was BMI. In that case Keely and Beaumont JJ (at 413), after referring to what was said by Buckley LJ and Scarman J in Wallersteiner v Moir [1974] 1 WLR 991 at 1029 and 1030 respectively, said:
" … we think that it is generally undesirable that the court should grant relief by way of declaratory orders under s 108 [of the Conciliation and Arbitration Act 1904 (Cth)] in the absence of any contest on the question."
Their Honours acknowledged (at 414) that, if it were demonstrated in a particular case that it were necessary that the question be resolved judicially, it may be appropriate for the court to appoint an amicus curiae to put the contrary view, if any, on the facts and on the questions of law which arise.
66 In BMI not only was there no contradictor, but the particular question that was the subject of the proposed declaration had become academic. Moreover, there were a number of contrary arguments on the merits; see 414-415. The Full Court did not propound any binding proposition of law, still less one which would bind single judges deciding cases under investor protection provisions of corporations legislation.
67 The suggestion of retaining counsel to put a contrary argument as amicus curiae raises the practical question as to who should foot the bill. Certainly it would be unreasonable to impose on the generosity of counsel who have volunteered for pro bono schemes. It is no function of the Court itself to expend money on filling a supposed gap in the range of arguments presented to it by the parties. And ASIC has limited public funds to spend on its important law enforcement functions.
68 In the present case, there being no suggestion of any embarrassment to non-parties in the present case, I will follow the principle accepted by Young J in Transphere.
[10]
Orders
69 I will make the declarations referred to above ([46]), and the following orders:
Pursuant to s 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be permanently restrained whether by himself, his servants or agents or otherwise from further operating or promoting the scheme.
Pursuant to ss 1101B and 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be permanently restrained whether by himself, his servants or agents or otherwise from:
(a) carrying on any business related to, concerning or directed to be a managed investment scheme within the meaning of the Corporations Act 2001 (Cth);
(b) being in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Corporations Act 2001 (Cth);
that requires, in any case, registration under s 601ED of the Corporations Act 2001 (Cth) and has not been so registered.
Pursuant to ss 1101B and 1324(1) of the Corporations Act 2001 (Cth) the fifth defendant be restrained, whether by himself, his servants or agents or otherwise from carrying on business in relation to financial products or financial services by:
(a) providing financial product advice;
(b) dealing in financial products;
without holding an Australian financial services licence.
The scheme be wound up pursuant to s 601EE(1) of the Corporations Act 2001 (Cth).
Pursuant to s 601EE(2) George Georges and Adrian Brown (who were appointed receivers of the property of the scheme and to report on the scheme by Order of Justice Young made 20 July 2006) be appointed joint and several liquidators of the scheme.
The liquidators have the power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the scheme, or incidental to the attainment of the winding up of the scheme, including the powers identified in s 477 of the Corporations Act 2001 (Cth) as each reference there to a "company" were a reference to the scheme.
The reasonable costs and expenses of the winding up of the scheme be paid out of the assets of the scheme.
To the extent that the sum paid to the liquidators under Order 7 is insufficient to meet the reasonable remuneration, costs fees and expenses of the liquidators, any shortfall is to be paid by the fifth defendant.
Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) the first, second, third and fourth defendants be wound up and that George Georges and Adrian Brown be appointed joint and several liquidators.
The restraining orders extended by Order made on 19 December 2006 (and originally made by paragraphs 11 and 12 of the Orders made on 20 July 2006) against the fifth, sixth and seventh defendants be vacated.
Paragraph 4 of the Order made on 17 July 2006, that the fifth to seventh defendants deliver up their passports, be vacated and the Registry make any passport delivered up in accordance with the order available for collection by the relevant defendant at the registry office where it is presently held.
The fifth defendant deliver his passport to his trustee in bankruptcy forthwith, pursuant to s 77(1)(a)(ii) of the Bankruptcy Act 1966 (Cth).
The fifth defendant not leave Australia during the period of his bankruptcy until 7 days after he has given ASIC written notice of his request to his trustee in bankruptcy for consent to leave Australia pursuant to s 272(1)(c) of the Bankruptcy Act 1966 (Cth).
The fifth defendant pay the plaintiff's costs of this proceeding including reserved costs.
The proceeding be dismissed against the sixth and seventh defendants with no order as to costs.
The proceeding otherwise be dismissed.
I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice HEEREY.
[11]
Associate:
Dated:
Counsel for the Plaintiff M Scott
[12]
Solicitor for the Plaintiff Australian Securities and Investments Commission
[13]
Solicitor for the Receivers of the First to Fourth Defendants Dibbs Abbott Stillman
[14]
Counsel for the Fifth Defendant M Bromley
[15]
Solicitor for the Fifth Defendant Corrs Chambers Westgarth
[16]
Counsel for the Sixth and Seventh Defendants N Evans
[17]
Solicitor the Sixth and Seventh Defendants Baker & McKenzie
[18]
Date of Hearing: 20 June 2007
[19]
Date of Judgment: 29 June 2007
[20]
SCHEDULE
The "scheme" is the "FUELbanc" scheme pursuant to which:
Investors give money and barter units known as "trade dollars" to the first defendant in exchange for a promise to pay weekly instalments into a debit card for use by each investor at service stations.
The first to fifth defendants invested or were to invest the money and barter units received from investors to produce the benefit of the credit to be provided on debit cards.
.
SCHEDULE OF PARTIES
AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Plaintiff
and -
FUELBANC AUSTRALIA LIMITED (ACN 117 937 327) ("FUELbanc")
First Defendant
and -
PAYCARDS GLOBAL PTY LTD (ACN 116 759 472) ("PayCards Global")
SecondDefendant
and -
PAYCARDS INVESTMENTS PTY LTD (ACN 118 252 369) ("Paycards Investments")
Third Defendant
and -
PC PROPERTY GROUP PTY LTD (ACN 118 252 387) ("PC Property Group")
FourthDefendant
[21]
and -
STEPHEN JOHN MCDOUGALL ("McDougall")
Fifth Defendant
and -
TIMOTHY ROSS MCDOUGALL ("Timothy McDougall")
[22]
MATTHEW ALAN MCDOUGALL ("Matthew McDougall")
Seventh Defendant