Australian Securities and Investments Commission v Johnston

REASONS FOR JUDGMENT 1 On 4 November 2009, the Australian Securities and Investments Commission (ASIC) filed an originating application seeking orders under s 1323(1) of the Corporations Act 2001 (Cth) prohibiting Mr Johnston from travelling overseas and requiring him to surrender his passport to the Registry of this Court in Brisbane. On the same day, ASIC made an ex parte urgent application for interim orders to the same effect. On that day, I made the interim orders sought, and delivered reasons (Australian Securities and Investments Commission v Johnston [2009] FCA 1276). 2 The application which ASIC makes today is for orders that the Court direct the Registry of the Court in Queensland to release Mr Johnston's passport to the trustees in bankruptcy of Mr Johnston, that the interim order prohibiting Mr Johnston from leaving Australia, be discharged, and that ASIC have leave to discontinue its originating application. 3 The evidence relied on by ASIC in support of the application made on 4 November 2009, disclosed that officers of ASIC were concerned that there were persons who had suffered financial damage as a consequence of Mr Johnston's conduct as a director of companies in the Firepower group of companies, and that ASIC needed to interview Mr Johnston, who was at the centre of the Firepower group's affairs, as part of an investigation in relation to certain potential offences under the Corporations Act; and that Mr Johnston was a flight risk. 4 For the reasons which I set out in my decision of 4 November 2009, I found that the claims made by ASIC, and the evidence relied on by ASIC in support thereof, warranted the making of the interim orders. 5 Because the restriction on a person's right to travel is a serious infringement of ordinary civil liberties, on 4 November 2009 I ordered the matter be brought back for hearing on an opposed basis on 9 November 2009. 6 When the matter was first brought back to Court on an opposed basis, Mr Johnston was represented by senior counsel. There was an indication that Mr Johnston would oppose the making of final orders, and that Mr Johnston intended to apply to discharge the interim orders, pursuant to his liberty to apply. 7 I gave directions for an opposed application to be heard by the Court, giving both parties an opportunity to file evidence in support of their respective positions. The contested application was due to be heard in late December 2009, but was adjourned by consent. 8 What then transpired was that, in April 2010, in anticipation of the hearing of the adjourned application on 20 April 2010, ASIC filed further affidavits in support of its application. However, prior to the hearing date, a consent order dated 15 April 2010 was signed by both parties adjourning the hearing of the application to a date to be fixed. Neither party subsequently applied to the Court to fix that date. It was on the Court's own motion that the matter was re-listed for a directions hearing in March this year. 9 On 28 April 2011, I made orders adjourning the directions hearing and directing that ASIC file an affidavit explaining the progress that had been made in relation to the investigations into the conduct of Mr Johnston which had been referred to in the affidavits, on which ASIC had relied in support of its application for interim orders in November 2009. 10 In the meanwhile, on 7 June 2011, a sequestration order was made against the estate of Mr Johnston and he was declared bankrupt. That order was made on the application of Mr Bryan Kevin Hughes who is a liquidator of one of the Firepower companies, Firepower Operations Pty Ltd. 11 On 30 June 2011, Mr Ivor Worrell and Mr Jason Walter Bettles were appointed as trustees in bankruptcy of Mr Johnston's bankrupt estate. As a consequence of the appointment of those two gentlemen as the trustees of Mr Johnston's bankrupt estate, s 77(1)(ii) of the Bankruptcy Act 1966 (Cth) came into operation. The section relevantly provides: 77(1) A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause: (a) forthwith after becoming bankrupt, give to the trustee: … (ii) the bankrupt's passport, if any. 12 Mr Johnston's passport, of course, was at that stage, and is still, held by the Registry of this Court in Brisbane. Mr Johnston is resident in Queensland. On 4 July 2011, ASIC wrote to Mr Bettles and referred to the section of the Bankruptcy Act to which I have referred. The letter went on to say: We understand that should the passport be released by the Court, you intend to hold the passport in your possession and that you would agree to provide ASIC with 14 days notice of any proposed return of the passport to Mr Johnston. Could you please advise whether you will hold Mr Johnston's passport on the basis described above should it be released by the Court. 13 By a letter dated 11 July 2011, in response to that letter from ASIC, Mr Bettles stated: Should the Brisbane Registry of the Federal Magistrates Court of Australia release Mr Johnston's passport to me as trustee of his bankruptcy estate, I undertake not to release the passport to Mr Johnston without giving ASIC 14 days notice of its proposed release. 14 ASIC then wrote a letter to Mr Johnston, which enclosed a copy of the draft orders which it has asked the Court to make today; namely, that the Brisbane Registry of the Court release Mr Johnston's passport to Mr Bettles and Mr Worrell, that paragraph 3 of the orders made by the Court on 4 November 2009 be set aside, that the application otherwise be discontinued, and that there be no order for costs. Paragraph 3 of the orders made on 4 November 2009 was the order which prohibited Mr Johnston from leaving Australia without the consent of the Court. 15 Mr Johnston declined to give his consent to the making of those orders and in effect, complained about ASIC's conduct in bringing the application in the first place. 16 Mr Johnston has also written to the Court complaining about the fact that ASIC communicated with his trustees in bankruptcy and stating that he opposed an order that, on discontinuance of the application, each party bear their own costs. Rather, contended Mr Johnston, his costs should be paid by ASIC. 17 Counsel for ASIC has drawn my attention to s 1323(8) of the Corporations Act, which provides that s 1323 of the Corporations Act has effect subject to the Bankruptcy Act. Counsel for ASIC says that as a result of the making of a bankruptcy order in respect of Mr Johnston, there is no utility in ASIC continuing its application which seeks final orders in relation to the surrender of Mr Johnston's passport and the prohibition on his travel. This is because the making of the sequestration order has overtaken the need for the making of final orders, and the continuance of the interim orders. 18 In my view, that is an appropriate position for ASIC to adopt. It follows that I will make the orders in relation to paragraphs 1 and 2 of the minute of proposed orders. 19 However, ASIC's application for leave to discontinue these proceedings, if granted, will mean that ASIC's originating application will not be finally determined by the Court. The usual course is that, where a party discontinues a proceeding, it has to pay the other side's costs, unless the Court otherwise orders. Whether the Court otherwise orders is a matter in the Court's discretion. There are a number of authorities in relation to how the Court should deal with costs in these circumstances. Among the cases to which counsel for ASIC referred, is Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194. In that case, the Australian Securities Commission also did not pursue its application to a final hearing. Hill J said that one needed to look at the reasonableness of the commencement of the proceedings and the way in which the proceedings had subsequently been conducted, to determine whether the parties had behaved reasonably and if they had not, whether that would affect the way in which costs were allocated. 20 On page 203, Hill J observed as follows: Having regard to my view that it was reasonable both for the Commission to commence the proceedings and for the respondents to defend them, that there has been no determination of the merits, that there is nothing in the evidence which ultimately displays behaviour of Mr and Mrs Bunt which should prejudice the exercise of discretion for costs, the fact that the order for interlocutory relief was continued by consent and that the parties acquiesced in the matter ultimately not being litigated for a considerable time, I am of the view that the appropriate order is that each side bear its own costs. 21 In my view, there is some similarity between those circumstances and the circumstances that prevail in this case. For the reasons which I outlined in my decision of 4 November 2009, it was not unreasonable for ASIC to bring the application. In fact, in my view, it was reasonable for ASIC to make the application. Albeit that Mr Johnston initially indicated that he would oppose the making of final orders and seek to set aside the interim orders, no such application was made. Further, by their conduct, the parties have subsequently acquiesced in the continuance of the interim orders, and the application for final orders not being tried. As mentioned, it was only at the Court's insistence that this matter was brought back into the lists in March 2011. 22 I did, on the last occasion that the matter was before the Court, indicate to ASIC that I wanted to receive evidence as to the progress of the investigations into Mr Johnston's conduct, to support the maintenance of the interim orders. However, in light of the bankruptcy order subsequently having been made, and Mr Bettles' undertaking to notify ASIC of any intention to release Mr Johnston's passport to him, the need for ASIC to maintain the interim orders, and so to file that evidence, fell away. 23 Further, in my view, there was no impropriety by ASIC's in having communicated with Mr Johnston's trustees in bankruptcy in relation to their proposed course of conduct, should Mr Johnston's passport be released to them. Section 1323(8) of the Corporations Act contemplates a relationship between s 1323 of the Corporations Act, and the relevant provisions of the Bankruptcy Act. Therefore, I reject Mr Johnston's contention that ASIC acted improperly, and should, therefore, pay his costs. 24 In all the circumstances, in my view, it is appropriate that each party should bear their own costs in relation to this application. I will give leave for ASIC to discontinue the proceeding, on that basis. 25 It follows therefore, that I will make orders in terms of paragraphs 1, 2, 3 and 4 of the minute of proposed orders. It is not necessary for me to make orders in terms of paragraph 5 of those orders. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.