Australian Securities and Investments Commission v Groves; in the matter of ABC Learning Centres Limited - [2009] FCA 915 - FCA 2009 case summary — Zoe

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Australian Securities and Investments Commission v Groves; in the matter of ABC Learning Centres Limited

[2009] FCA 915

Federal Court of Australia|2009-08-19|Before: Lindgren J

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Court

Federal Court of Australia

Decision date

2009-08-19

Before

Lindgren J

Source

Original judgment source is linked above.

Judgment (20 paragraphs)

[1]

Introduction 1 These reasons for judgment relate only to the question of costs as between the plaintiff and the first and second defendants in circumstances in which the proceeding was resolved between them on the date fixed for the hearing, following the filing of voluminous affidavits but without the reading of any of them as related to costs.

[2]

Legislation 2 The plaintiff, Australian Securities and Investments Commission (ASIC), commenced this proceeding on 24 June 2009. It is brought under s 1323 of the Corporations Act 2001 (Cth) (Corporations Act) (the originating process also referred to s 23 of the Federal Court of Australia Act 1976 (Cth) but I need say no more of this provision). 3 Section 1323 provides, relevantly, as follows: (1) Where: (a) an investigation is being carried out under … 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) ...; or (c) ...; 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) ... (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) ...; (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) ...; (g) ...; (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. (2A) A reference in paragraph (1)(g) or (h) to property of a person includes a reference to property that the person holds otherwise than as sole beneficial owner, for example: (a) as trustee for, as nominee for, or otherwise on behalf of or on account of, another person; or (b) in a fiduciary capacity. (2B) Subsection (2A) is to avoid doubt, is not to limit the generality of anything in subsection (1) and is not to affect by implication the interpretation of any other provision of this Act. 4 Certain features of s 1323 may be noted at once. 5 First, the object of the provision is plainly to protect the interests of the aggrieved person pending completion of ASIC's investigation and the taking of a decision to commence or not to commence a proceeding for substantive relief against the relevant person in the interests of the aggrieved person. 6 Second, a proceeding for monetary relief against the relevant person may never eventuate. 7 Third, if such a proceeding does eventuate, it may be brought, not by ASIC, but by the "aggrieved person". 8 Fourth, since the condition of the Court's power to make an order under s 1323 is, relevantly, that "an investigation is being carried out", it seems desirable that any order to be made under the section be expressed to be for a duration limited by reference to a period representing the estimated duration of the investigation. 9 ASIC is carrying out a substantial investigation that relates in various ways to the affairs of ABC Learning Centres Limited (ABC). The investigation includes an investigation into suspected contraventions of various provisions of the Corporations Act by, relevantly, the defendants.

[6]

Certain features of the proceeding as at 30 June 2009 17 No affidavits were read relevant to the costs issue, either on 30 June 2009 or on 27 July 2009. The account of the facts given in these reasons is based on what I understand to be matters not in controversy and on certain items of correspondence that were admitted into evidence on a debate as to costs which took place on 27 July 2009. 18 It is convenient to set out the following features which formed a background to the proceeding as at 30 June 2009: · Mr JA Halley SC and Ms RL Doland appeared for ASIC, Mr AG Hartnell, solicitor, appeared for Mr Groves, Mr AP Spencer of counsel appeared for Ms Collins-Rubie, and Ms ST Chrysanthou of counsel appeared for Mr Zullo; · Mr Groves and Ms Collins-Rubie are husband and wife; · Mr Zullo is Mr Groves's brother-in-law; · Mr Groves was the beneficial owner of the sole share in the capital of Perfection Too and Ms Collins-Rubie was its sole director; · On or about 18 May 2009, Ms Collins-Rubie signed a contract for sale of the Currumbin Property to Mr Zullo. I was informed on the hearing on 30 June that the property was transferred to Mr Zullo. Nonetheless, Mr Groves, Ms Collins-Rubie and their children continued to reside in it; · as at an earlier time when they were not married, Mr Groves and Ms Collins-Rubie resided in a house at 71 Jefferson Lane, Palm Beach, Queensland (the Palm Beach property) which, on or about 30 March 2009, Perfection Too had transferred to Ms Collins-Rubie; · the Trust is a discretionary trust, the potential beneficiaries under which are Mr Groves, Ms Collins-Rubie and Mr Groves's two daughters; · ASIC's case was to be that for the purposes of s 1323 the aggrieved persons would be or include creditors and shareholders of ABC, and that at least the first two defendants were "relevant persons" for the purposes of that section because they were or might be or become liable to pay money to those creditors under various provisions of the Corporations Act (reference was made to ss 180, 181, 182, 183, 184, 208, 209, 344, 596, 1041E, 1308 and 1309); · it was foreshadowed that on the hearing a major issue would be whether the property held by Perfection Too as trustee of the Trust constituted property "of" Mr Groves for the purposes of s 1323 (ASIC said that it proposed to rely on Australian Securities and Investment Commission v Carey (No 6) (2006) 153 FCR 509 (French J, as his Honour then was) and to contend that Perfection Too and the Trust were the alter ego of Mr Groves); · Mr Spencer emphasised that Perfection Too had not been joined as a defendant even though orders were sought that affected the potential beneficiaries of the Trust; · Mr Halley SC explained that the view had been taken that the only appropriate defendants were persons who were "relevant persons" within s 1323, which Perfection Too was not, but that if Perfection Too was the alter ego of Mr Groves it should be possible for the Court to appoint a receiver of the property it held as trustee of the Trust without its being a defendant, and if it was not his alter ego ASIC would not be entitled to any relief in respect of the Trust property; · Mr Halley SC said that the only involvement of Ms Collins-Rubie was in relation to the Palm Beach property and her involvement with the Trust generally. 19 I directed that the defendants file and serve any affidavits by 17 July 2009, that ASIC file and serve any affidavits in reply by 23 July 2009, and that the proceeding be fixed for hearing on 27 and 28 July 2009. 20 It is fair to say that it was envisaged that the main issue to be resolved at the hearing on 27 and 28 July 2009 was what might be described as "the alter ego point" or "the Trust point": was the property held by Perfection Too as trustee of the Trust property "of" Mr Groves for the purposes of s 1323?

[9]

Non-joinder of Perfection Too. 29 Mr Groves and Ms Collins-Rubie submitted that the proceeding was "fatally" or "improperly" constituted because of the non-joinder of Perfection Too. The submission has its curious aspects. It is common ground that at most the non-joinder of Perfection Too would mean that ASIC could not have obtained relief that it was seeking in respect of the property held by Perfection Too as trustee of the Trust. As noted earlier, by para 4(a) of the originating process ASIC sought the appointment of a receiver or receiver and manager in respect of the property of Mr Groves and Ms Collins-Rubie "including over all of the property held by Perfection Too [as trustee of the Trust]", and by para 7(b) ASIC sought at an order appointing a receiver or receiver and manager over all of the property held by Perfection Too as trustee of the Trust. Had I decided that the non-joinder point was sound, the result would have been that the relief sought in the terms of those two paragraphs could not have been granted. No doubt this result may have theoretically pleased the absent Perfection Too which may have been theoretically grateful to the present Mr Groves and Ms Collins-Rubie for having raised the point. Those two individuals would have been left defending the proceeding in so far as relief was sought against them. 30 Mr Groves (and Ms Collins-Rubie) had always wished to insist that Perfection Too and the Trust were never the alter ego of Mr Groves. On that basis, even prior to the change of directors on 16 July 2009 it was always Perfection Too that had a right to complain of the non-joinder and to apply to be joined and to seek an order for payment of its costs by ASIC if ASIC failed to obtain any relief against it. 31 As a result of the change of directors on 16 July 2009, Perfection Too was not the alter ego of Mr Groves after that date. But through its newly appointed independent directors, Perfection Too came to an accommodation with ASIC as a result of which ASIC no longer pressed for relief touching property held by Perfection Too as trustee of the Trust, and Perfection Too did not seek to be joined as a party. 32 I am inclined to accept the submission of Mr Groves and Ms Collins-Rubie, advanced in the interest of Perfection Too, that Perfection Too was a necessary party, but I need not decide the point because I do not consider that its non-joinder avails them on the issue of costs. 33 The issue of substance that was to be argued and determined, but which has not been, was whether Perfection Too and/or the Trust were the alter ego of Mr Groves and, if so, whether the property that Perfection Too held as trustee of the Trust was property "of" Mr Groves for the purposes of s 1323. Mr Groves had to prepare to argue this issue in his own interests and can hardly be heard to complain that Perfection Too was not joined. If it was his alter ego it would only have echoed his submissions; if it was not his alter ego its active participation in the proceeding may not have been in his interests and may have favoured ASIC. 34 The obvious should be noted: while ASIC accepts that Messrs Vincent and Combis are independent directors, so that since 16 July 2009 Perfection Too has not been the alter ego of Mr Groves, it is Mr Groves and Ms Collins-Rubie and presumably their advisers who brought about the change in the composition of the board of directors. This is not, of course, to level any criticism at anyone: no doubt Ms Collins-Rubie was entitled to resign as a director and Mr Groves was entitled to appoint Messrs Vincent and Combis as directors in her place. These circumstances, however, highlight the oddness of the argument that somehow ASIC's non-joinder of Perfection Too means that it should have to pay the costs of Mr Groves and Ms Collins-Rubie. 35 In rejecting this first argument of Mr Groves (and Ms Collins-Rubie), I do not decide whether Perfection Too was a necessary party although, as indicated above, I am inclined to the view that it was. The argument to the contrary, however, is not without merit. At the time when Ms Collins-Rubie was the sole director of Perfection Too, the only persons interested in the issue were Mr Groves as sole shareholder and Ms Collins-Rubie as sole director of Perfection Too, admittedly in its capacity as trustee of the Trust. If ASIC had succeeded on the issue, the effect of that success would have been that the Court would have "looked through" Perfection Too and the Trust, and, at least arguably, the Court might have made the orders sought in paras 4(a) and 7(d) of the originating process. Failure by ASIC upon that issue would similarly have meant that such orders would not have been able to be made. 36 Once the independent directors were appointed, however, Perfection Too clearly became a necessary party, as ASIC seemed to acknowledge. ASIC did not then join Perfection Too because it did not wish to seek orders against Perfection Too on 27 July 2009 because of the agreement it had reached with the independent directors. 37 The non-joinder of Perfection Too is not a reason for ordering ASIC to pay the costs of Mr Groves and Ms Collins-Rubie.

[10]

Events on the hearing on 27 July 2009. 38 Attached to Mr Groves's submissions dated 27 July 2009 was a form of undertaking that he proffered. Generally speaking it was to continue until 5.00 pm on 30 June 2010 and was similar to the interim undertakings that he had given on 30 June 2009, but with one important difference: the proposed undertaking was expressed to be subject to a determination by the Court as to whether the property held by Perfection Too as trustee for the Trust was property of Mr Groves and/or Ms Collins-Rubie. That is to say, the undertaking would not bite until the Court determined whether Mr Groves's undertaking did or did not extend to that property. (Mr Groves's interim undertaking had expressly excluded any property held during the pendency of the undertaking as an asset of the Trust unless such property was distributed to or for the benefit of Mr Groves, but such property had been safeguarded by the terms of the interim undertaking given by Ms Collins-Rubie, the sole director of Perfection Too.) Initially on the hearing on 27 July, senior counsel for Mr Groves urged that the Court should proceed to determine that question. 39 At about 12.27 pm Mr R Schneider of HWL Ebsworth attended the Court and informed the Court that his firm had been retained by Perfection Too for the limited purpose at that stage of advising the new directors, Messrs Vincent and Combis, in relation to a form of undertaking that senior counsel for ASIC had handed up during the course of the morning. I mentioned the general nature of that undertaking earlier. The Court accepted the undertaking of Perfection Too as being "by consent and without admissions" and Mr Schneider was excused from further attendance. 40 The next development of significance was that senior counsel for Mr Groves was instructed to proffer the undertaking attached to his submissions no longer subject to the condition making it contingent upon determination of the issue mentioned. He submitted, correctly, that the now unqualified undertaking would, for example, cover the share in Perfection Too owned by Mr Groves. It would leave unresolved, however, the question whether the undertaking extended to the property held by Perfection Too as trustee of the Trust. 41 Subject to one matter which I raised, this question had become otiose because of the undertaking that Perfection Too had given through its independent directors to the Court and to ASIC. The one outstanding matter was the possibility that Mr Groves might remove Perfection Too as trustee of the Trust and/or remove Messrs Vincent and Combis as directors of Perfection Too. In order to exclude this possibility, the form of undertaking proffered by Mr Groves was further amended by being enlarged to incorporate an undertaking by him not to take any step to appoint or remove directors of Perfection Too or to remove that company as trustee of the Trust. 42 Notwithstanding all of these developments, Mr Groves wished to have the "alter ego" issue determined. It was clear by now, however, that that question was academic. By consent, the proceeding as against Mr Groves and Ms Collins-Rubie was "otherwise dismissed", albeit, in Mr Groves's case, without prejudice to ASIC's right to bring fresh proceedings

[11]

Mr Groves 43 I turn now to the position of Mr Groves. 44 Mr Groves submits (all submissions on costs were oral) that ASIC should pay his costs either in general or at least from 17 July 2009. He makes the following submissions: (1) Mr Groves gave voluntary undertakings to ASIC in November 2008 which disclosed the Trust yet ASIC raised no issue in relation to it for some seven months (until the commencement of this proceeding on 24 June 2009); (2) Mr Groves was not given advance notice in June 2009 of ASIC's intention to launch this proceeding and the urgency under which Mr Groves has laboured has been generated by ASIC's delay in bringing the proceeding; (3) the proceeding has always been "fatally constituted" for the non-joinder of Perfection Too; (4) on 17 July 2009 the independent directors of Perfection Too proffered an undertaking to ASIC of which ASIC should have informed Mr Groves (and Ms Collins-Rubie) and which ASIC should have accepted, thereby doing away with the entirety of the application and saving the cost of the hearing on 27 July 2009; (5) Mr Groves has been put to considerable expense in the preparation of evidence to address the Trust issue and was required to produce his witnesses for cross examination (with the exception of Mr Vincent), of whom Messrs Tribe and Black travelled from Brisbane to Sydney for a pointless exercise; (6) a letter dated 23 July 2009 from ASIC to the solicitors for Mr Groves shows that the form of consent order attached to Mr Groves's submissions had been negotiated and were acceptable to ASIC, yet: · by the letter ASIC indicated that it still wished the hearing to proceed on the Trust issue and on the issue whether Ms Collins-Rubie was a "relevant person" within s 1323 of the Corporations Act; and · ASIC decided not to press for a hearing on either issue on 27 July 2009. 45 I will deal with these submissions in turn. (1) The history of events since November 2008 has not been fully ventilated. It seems clear that what prompted the commencement of the proceeding was the more recent transfers by Perfection Too of the Currumbin property and the Palm Beach property (see [18] above). (2) Advance notice would not have produced the result that ASIC has secured, as Mr Groves's continued resistance to ASIC's claim down to late on 27 July 2009 shows. (3) I have dealt earlier with the non-joinder of Perfection Too. (4) Mr Vincent wrote to ASIC on 17 July 2009 advising that on 16 July 2009 Ms Collins-Rubie resigned as director and secretary of Perfection Too and that he and Mr Combis had been appointed as directors of the company on that date. The letter advised that he and Mr Combis understood that the directors, and by extension Perfection Too, were not bound by the interim undertaking that Ms Collins-Rubie had given on 30 June 2009, but the letter proposed an undertaking by Perfection Too also until 28 July 2009. That undertaking was along the lines of that which Perfection Too gave until 30 June 2010 on the hearing on 27 July 2009. The short answer to Mr Groves's point is that what was proffered in Vincents' letter of 17 July 2009 was only an interim undertaking until 28 July 2009. (5) Mr Groves wished to have the Trust issue determined. ASIC was ready to litigate that issue but it was rendered otiose by the undertaking given by Perfection Too coupled with the withdrawal of the conditionality of Mr Groves's own proffered undertaking (see [40] above) and the enlargement of that undertaking (see [41] above) on 27 July 2009. (6) ASIC's letter dated 23 July 2009 advised Mr Groves's solicitors that at that stage ASIC intended only to tender evidence relating to the Trust issue and Ms Collins-Rubie's status as a "relevant person" for the purposes of s 1323 of the Corporations Act. Accordingly, ASIC identified the affidavit evidence upon which it proposed to rely. It seems to me, however, that at that date Mr Groves's proposal was conditional in that he himself wished to have the Trust issue determined on the hearing.

[12]

Ms Collins-Rubie 46 I turn now to the position of Ms Collins-Rubie. 47 Ms Collins-Rubie submits that on 30 June 2009 senior counsel for ASIC made it clear that in relation to her ASIC was concerned only with the transfer of the Palm Beach property to her by Perfection Too and her involvement with the Trust generally. Counsel for Ms Collins-Rubie states that his client then understood that ASIC's case was that Ms Collins-Rubie was a "relevant person" only in relation to two transactions: one in relation to the sale of teddy bears, and the other in relation to the payment of rent, neither of which matters surfaced at the hearing on 27 July 2009 (both of these matters had been referred to in passing at times during the hearing). Counsel's substantial submission, however, seems to be that the relief with which ASIC was ultimately satisfied was in substance in the same terms as that which had been the subject of his client's undertaking given to the Court on 30 June 2009. Counsel emphasises that there was no request by ASIC between 30 June 2009 and 27 July 2009 for Ms Collins-Rubie to extend her undertaking. He submits that for ASIC to seek relief over all of Ms Collins-Rubies' property, as it did in its originating process, and to go away with an order limited by reference to one property (the Palm Beach property) is in substance a defeat. 48 Senior counsel for ASIC puts two submissions. First, he submits that the evidence that ASIC had filed as of 30 June 2009 should have demonstrated to Ms Collins-Rubie that ASIC proposed to establish that she was herself a "relevant person" within s 1323, and that indeed Ms Collins-Rubie had responded to that evidence in an affidavit. Second, he submits that in any event Ms Collins-Rubie should have appreciated that ASIC was intent on obtaining an order in relation to the Palm Beach property even on a derivative basis through Mr Groves and Perfection Too; that is to say, that Ms Collins-Rubie received, in circumstances that rendered her liable, property of Mr Groves through his alter ego Perfection Too. 49 Without a reading of all of the affidavits and, indeed, affidavit evidence directed to the more recent negotiations, it is difficult to be confident that I understand fully the force of the submissions put for and against Ms Collins-Rubie. However, ultimately I am not persuaded that her position in relation to costs is different from that of Mr Groves. 50 I did not detect a volunteering of any undertaking by Ms Collins-Rubie promptly following the commencement of the proceeding similar to the one that she ultimately gave. Moreover, it would be shielding one's eyes to the obvious not to recognise the coincidence of the interests of Mr Groves and Ms Collins-Rubie. Her affidavit was prepared by Mr Groves's solicitors, bore their name and was filed on Mr Groves's behalf. 51 As Young CJ in Eq (as Young JA then was) observed in Australian Securities and Investments Commission v Krecichwost (2008) 219 FLR 235 in relation to a costs issue on an application under s 1323, "[e]ach case must be decided on its own facts and merits" (at [27]). In that case, on which Mr Groves relies, his Honour ordered ASIC to pay the relevant defendant's costs. However, the circumstances were that ASIC had obtained ex-parte relief against the relevant defendant who consented to extensions of that relief. With respect, it is understandable that his Honour treated that defendant's costs as an incident of the costs of ASIC's investigation that ASIC should bear. 52 The present proceeding is very different. ASIC did not seek ex parte relief; its application under s 1323 was resisted by Mr Groves and Ms Collins-Rubie; they and ASIC filed and served extensive affidavit evidence; the proceeding was fixed for final hearing; and even when, at the beginning of the hearing on 27 July 2009 it was clear that ASIC did not seek to pursue Perfection Too, Mr Groves and Ms Collins-Rubie wished the hearing to proceed. 53 As at the beginning of the date fixed for the final hearing, the parties were still strongly in dispute. It was only progressively throughout the day that they reached agreement. 54 In my opinion the parties should be left to bear their own respective costs. There has not been an adjudication upon the merits and it is not possible to say what the ultimate outcome of the proceeding would have been. In all the circumstances, the test that is to be applied to the conduct of the antagonists is one of reasonableness in the light of the nature of the particular proceeding and all the circumstances. In Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622, McHugh J said (at 625) that where both parties appear to have acted reasonably, the proper exercise of the discretion as to costs will usually be that the Court will make no order as to costs. Similarly, in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 202-203, Hill J applied a test of reasonableness to the conduct of ASIC's predecessor, the Australian Securities Commission in respect of a discontinued proceeding under s 1323 of the Corporations Law and determined that each party should bear its own costs. 55 I am not persuaded to think that, in the relevantly short period from the commencement of the proceeding on 24 June 2009 to its conclusion late on 27 July 2009, either ASIC or Mr Groves or Ms Collins-Rubie can be said to have behaved so unreasonably that it, he or she should be ordered to pay the costs of any other party.

Australian Securities and Investments Commission v Groves; in the matter of ABC Learning Centres Limited

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