Australian Securities and Investments Commission v Johnston

Federal Court of Australia|2009-11-04|Before: Siopis J

THE COURT ORDERS THAT:

The need for service of the originating process and the interlocutory process is dispensed with in the first instance and the application be heard ex parte.
The interlocutory process is returnable instanter.
Pending the determination of the application made by the originating process, the defendant is prohibited from leaving Australia without the consent of this Court.
The defendant is to by 12 noon WST on Friday, 6 November 2009 deliver up to the Registry of this Court at Level 6 Commonwealth Law Court Building, 1 Victoria Avenue, Perth Western Australia or Level 6, Harry Gibbs Commonwealth Law Courts Building, 119 North Quay, Brisbane, Queensland (or any other Registry of the Court): (a) the defendant's passport or passports; and (b) any further documents in the defendant's possession, custody or power for the purposes of enabling him to travel outside Australia; such documents to be held in the Registry until the determination of the application made by the originating process.
Time for service of the originating process and the interlocutory process is abridged to 5:00 pm WST on Thursday, 5 November 2009 (with the plaintiff to effect service on the defendant of a copy of this Order and the papers filed in support of the originating process and the interlocutory process by that time).
The originating process and the interlocutory process are returnable before the Court at 11:00 am WST on Monday, 9 November 2009.
The defendant has liberty to apply to set aside this Order or to vary its terms on 24 hours written notice to the plaintiff, and otherwise each party has liberty to apply.
The plaintiff has leave to give to: (a) the relevant authorities that record, control and regulate the passage of individuals out of Australia; and (b) any person who operates international transport services originating in Australia; notice of this Order by delivering a copy of these Orders to a person apparently in the employ of that entity or person. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

general division WAD 195 of 2009

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

REASONS FOR JUDGMENT 1 This is an urgent application by the Australian Securities and Investments Commission (ASIC) for orders under s 1323(1)(j) and s 1323(1)(k) of the Corporations Act 2001 (Cth) prohibiting the defendant, Mr Johnston, from leaving Australia and also requiring him to hand to a Registrar of the Court his passport and other travel documents. 2 Mr Johnston is a director of companies within the Firepower group, which are now in liquidation. Mr Johnston left Australia in March 2008. However, the evidence is that he has returned to Australia from Indonesia, where he is now resident, for a short visit and intends to depart Australia within a day or two. 3 The Court has power under s 1323(1) of the Corporations Act to make orders of the kind sought by ASIC. In summary, such orders may be made when the following conditions are satisfied. 4 First, an investigation is being carried out by ASIC under the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) or the Corporations Act in relation to an act or omission by, in this case, Mr Johnston, which constitutes or may constitute a contravention of the Act. I am satisfied that this condition has been met in this case. 5 Secondly, the Court considers it necessary or desirable to make the order or orders sought for the purpose of protecting the interests of persons, referred to as aggrieved persons, where the person the subject of the investigation, namely, in this case, Mr Johnston, is liable to pay, or may become liable to pay, money, whether by way of debt, damages or other compensation, to the aggrieved persons. 6 In this case, the aggrieved persons appear to be investors or members of the public who were induced to purchase shares in a company, Firepower Holdings Group Ltd (Firepower BVI), within the Firepower group; and also creditors of another company in the Firepower group called Firepower Operations Pty Ltd (Firepower Operations). I am satisfied that there are persons, therefore, who are within the category of aggrieved persons. 7 This application is brought on an urgent basis because, as I have said, on the evidence, Mr Johnston is only in Australia for four days and is likely to be leaving Australia today or tomorrow. Because of the urgency, the orders have been sought on an interim basis, and in the absence of Mr Johnston. The urgency of the application is a factor which weighs with me in determining whether to make the interim orders sought. 8 I am also, of course, conscious of the fact that the right to travel freely is a very important private right. It is not a right which would be lightly interfered with. However, the authorities show that the public interest may, in certain circumstances, outweigh that private right and justify an interference with that right. 9 In ASIC's helpful submissions, which I accept, the following factors have been identified as among the factors which will be weighed against the right to travel freely. 10 First, the fact that the investigation being carried out cannot be properly or effectively conducted in the absence of the person. 11 Secondly, the importance of the person in the ongoing investigation, the character of the potential offences, the fact that the person has a base overseas and the stage at which the investigation is at. 12 Thirdly, whether there is evidence that by examination of the person (which may be thwarted if the person flees Australia) ASIC is likely to improve the chances of the aggrieved persons retrieving their moneys. 13 In support of its contention that the public interest renders it necessary or desirable that the orders be made, notwithstanding the infringement of Mr Johnston's right to travel freely, ASIC has relied upon the affidavit of Mr Gary Martyn Bertram, who is an investigator with ASIC. 14 Mr Bertram has deposed to investigations which have already been undertaken by ASIC in relation to the affairs of Firepower BVI. Those investigations have centred upon the circumstances in which securities in that company were offered to members of the public. ASIC has already commenced a proceeding in this Court against a number of persons, including Mr Johnston in respect of those matters. That proceeding is confined to allegations of contraventions of s 727(1) of the Corporations Act. 15 Mr Bertram's evidence is that the ASIC investigation is continuing. It involves potential contraventions by Mr Johnston of ss 181, 182, 183, 184 and 1041E, 1041F and 1041G of the Corporations Act. These sections, if contravened, can give rise to a claim for damages or compensation at the instance of aggrieved persons. 16 Mr Bertram has also deposed that ASIC has received a report from the liquidator of Firepower Operations, which apparently operated as the company to facilitate all the operations of the Firepower group, including the manufacture, sale and distribution of a product which purported to increase the efficiency and decrease the emissions of fuel. However, it emerges from the liquidator's report, which is highly critical of the officers of the company, that he has serious doubts as to what the purpose of that company actually was. As to the report, it is sufficient for me to observe that the liquidator states that there are serious matters which warrant further investigation affecting Mr Johnston and other persons who acted as directors, or as de facto directors, of that company. These matters include whether there were breaches of director's duties and whether Mr Johnston was involved in permitting the company to trade whilst insolvent. There is evidence that unsecured creditors are owed about $3 million in total. As I understand it, there are 108 unsecured creditors. This report comprises new material which has come to ASIC's attention and it is considering the report with a view to investigating the matters referred to in the report. 17 Mr Bertram says that the investigations carried out to date point to Mr Johnston being at the centre of the affairs of the Firepower group. Mr Bertram goes on to say that it is likely that Mr Johnston is the only person who can answer many of the questions in the investigation, and that it would be difficult, if not impossible, to effectively conduct the investigation if Mr Johnston returned overseas. 18 Mr Bertram has also set out in his affidavit, an indicative timetable which discloses an intention by ASIC to conduct examinations of Mr Johnston under the coercive powers in the ASIC Act, both in relation to the Firepower BVI investigation and also in relation to the affairs of Firepower Operations. 19 Mr Bertram has also foreshadowed that the liquidator of Firepower Operations may also seek to examine Mr Johnston under s 596A of the Corporations Act. 20 In addition, Mr Bertram has deposed that a brief has been prepared and forwarded to the Director of Public Prosecutions in respect of potential criminal conduct affecting Mr Johnston. This is relevant in assessing whether if the interim orders were not made, Mr Johnston would be likely to return to Australia, once he learned of this fact. 21 At this early stage, it is necessary for me to be satisfied that there is evidence of sufficient weight to justify the making of interim orders, in the absence of Mr Johnston, which will seriously interfere with his private right to travel before he has had an opportunity to contest ASIC's application. 22 I am satisfied that the evidence, as it presently stands, would permit me to conclude that Mr Johnston was at the centre of the operations of the Firepower group, and that his personal attendance before the proposed ASIC investigative hearings; and also at any examinations that may be conducted by the liquidator, would be crucial to the effective conduct of those investigations. Consequently, it would be open to find at a final hearing that it is desirable that the orders sought be made in order to protect the interests of the aggrieved persons. Weighing the strength of the evidence against the inconvenience to Mr Johnston and the risk to the public interest if the orders were not made, I am satisfied that the interim orders should be made. Accordingly, I am satisfied that there is an evidentiary basis upon which I can, at least on this interim basis, and in the absence of Mr Johnston, make orders in the terms sought. 23 I will, therefore, make orders which will have this matter come back before the Court on 9 November 2009. I anticipate that on that occasion, Mr Johnston will be represented. I certify that the preceding twenty‑three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Associate: Dated: 6 November 2009 Counsel for the Plaintiff: Mr J Allanson SC and Mr J Vaughan

Corporations Act 2001(Cth)s 1323(1)

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