Australian Securities and Investments Commission v M101 Nominees Pty Ltd

Federal Court of Australia|2022-05-04|Before: Mr AJ, Mr P, O'Callaghan J

Proceeding VID 524 of 2020 and proceeding VID 666 of 2021 be stayed pending the determination of proceeding VID 244 of 2021 and proceeding VID 36 of 2022.
The parties to proceeding VID 524 of 2020 and proceeding VID 666 of 2021 be granted liberty to apply on three days' notice.
Subject to paragraph 4, the costs of the plaintiff's interlocutory applications filed 15 November 2021 in both proceedings, the second defendant's interlocutory application filed 9 February 2022 in proceeding VID 524 of 2020, and the defendants' amended interlocutory application filed 15 February 2022 in proceeding VID 666 of 2021, be reserved.
If any party seeks a different costs order, that party give notice in writing to the Court and the other party or parties within seven days. Directions will then be made for the determination of the issue on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PROCEDURAL HISTORY 1 By an originating process dated 7 August 2020, in proceeding VID524/2020, the Australian Securities and Investments Commission (ASIC) sought orders including for the winding up of the first defendant, M101 Nominees Pty Ltd (M101 Nominees), pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (Corporations Act). ASIC also sought injunctions against the three defendants, including, relevantly, injunctions restraining the second defendant (Mr Mawhinney) from receiving or soliciting funds in connection with any financial product; advertising, promoting or marketing any financial product; and removing or transferring from Australia any assets acquired directly or indirectly with funds received in connection with any financial product. 2 On 13 August 2020, Anderson J granted ASIC's application for ex parte interim orders appointing Mr Said Jahani and Mr Philip Campbell-Wilson as joint and several provisional liquidators of M101 Nominees, granted the injunctions sought against Mr Mawhinney on an interim basis and made other orders (until further order) against Mr Mawhinney. See Australian Securities and Investments Commission v M101 Nominees Pty Ltd, Re M101 Nominees Pty Ltd [2020] FCA 1166. 3 On 29 January 2021, Anderson J granted ASIC's application seeking final orders that the provisional liquidators of M101 Nominees be appointed as liquidators. See Australian Securities and Investments Commission v M101 Nominees Pty Ltd [2021] FCA 62. 4 On 23 March 2021, in proceeding VID228/2020, between ASIC as plaintiff and Mayfair Wealth Partners Pty Ltd, M101 Holdings Pty Ltd, M101 Nominees and Online Investments Pty Ltd as defendants, Anderson J made the following declarations: 1. During the period from 3 July 2019 to 16 April 2020 (Relevant Period), the Defendants represented to consumers that promissory notes called "M+ Fixed Income Notes" and "M Core Fixed Income Notes" (the Mayfair Products) were comparable to, and of similar risk profile to, bank term deposits (Bank Term Deposit Representations), when the Mayfair Products expose investors to significantly higher risk than bank term deposits, including by reason of the fact that: (a) the Mayfair Products lack the prudential regulations that apply to bank term deposits; and (b) accordingly, the Mayfair Products are not comparable to bank term deposits, and, as a consequence, the Defendants, in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in relation to financial services, in contravention of s 1041H(1) of the Corporations Act 2001 (Corporations Act) and s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (ASIC Act); (b) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products were of a particular standard, quality, value or grade, in contravention of s 12DB(1)(a) of the ASIC Act; and (c) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products had performance characteristics or benefits, in contravention of s 12DB(1)(e) of the ASIC Act. 2. During the Relevant Period the Defendants represented to consumers that, on maturity of the Mayfair Products, the principal would be repaid in full (Repayment Representations), when investors in the Mayfair Products might not receive capital repayments at maturity because the Defendants had the contractual right to elect to extend the time for repayment to investors for an indefinite period of time, including where the Defendants did not have sufficient funds to repay investments at maturity, which right the Defendants have in fact exercised and, as a consequence, the Defendants, in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in relation to financial services, in contravention of s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act; (b) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products were of a particular standard, quality, value or grade, in contravention of s 12DB(1)(a) of the ASIC Act; and (c) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products had performance characteristics or benefits, in contravention of s 12DB(1)(e) of the ASIC Act. 3 During the Relevant Period the Defendants represented to consumers that the Mayfair Products were specifically designed for investors seeking certainty and confidence in their investments and therefore carried no risk of default (No Risk of Default Representations), when there was a risk that investors could lose some or all of their principal investment and, as a consequence, the Defendants, in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in relation to financial services, in contravention of s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act; (b) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products were of a particular standard, quality, value or grade, in contravention of s 12DB(1)(a) of the ASIC Act; and (c) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products had performance characteristics or benefits, in contravention of s 12DB(1)(e) of the ASIC Act. 4 During the Relevant Period the First, Third and Fourth Defendants represented to consumers that the M Core Fixed Income Notes were fully secured financial products (Security Representations), when funds invested in M Core Fixed Income Notes were: (a) lent to Eleuthera Group Pty Ltd and not secured by first-ranking, unencumbered asset security or on a dollar-for-dollar basis or at all; (b) used to pay deposits on properties prior to any security interest being registered; and (c) used to purchase assets that were not secured by first-ranking, unencumbered asset security, and, as a consequence, the First, Third and Fourth Defendants, in trade or commerce: (d) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in relation to financial services, in contravention of s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act; (e) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products were of a particular standard, quality, value or grade, in contravention of s 12DB(1)(a) of the ASIC Act; and (f) in connection with the supply or possible supply of financial services, made a false or misleading representation that the Mayfair Products had performance characteristics or benefits, in contravention of s 12DB(1)(e) of the ASIC Act. See Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd (No 2) [2021] FCA 247. 5 On 19 April 2021, Anderson J made the following orders in proceeding VID524/2020: THE COURT NOTES THAT: For the purpose of this order, the "Mawhinney Entities" means: 1. the Second Defendant in his personal capacity; 2. any superannuation fund of which the Second Defendant or any of his immediate family members is a member; and 3. any trust or company outside of the Mayfair 101 Group through which Mr Mawhinney holds personal investments or shares. THE COURT ORDERS THAT: 1. For a period of 20 years from the date of these Orders, the Second Defendant, by himself, his servants, agents, employees and any company of which he is an officer or member, be restrained from: (a) soliciting funds in connection with any financial product (as defined in Division 3 of Chapter 7 and s 9 of the Corporations Act 2001 (Cth)) (Financial Product)), including but not limited to products known as the M Core Fixed Income Notes, M+ Fixed Income Notes and Australian Property Bonds; (b) receiving funds in connection with any Financial Product, including but not limited to products known as the M Core Fixed Income Notes, M+ Fixed Income Notes and Australian Property Bonds, other than financial products held by or issued to the Mawhinney Entities; (c) advertising, promoting or marketing any Financial Product, including but not limited to products known as the M Core Fixed Income Notes, M+ Fixed Income Notes and Australian Property Bonds; and (d) without a Court order, removing or transferring from Australia any assets acquired directly or indirectly with funds received in connection with any Financial Product, including but not limited to products known as the M Core Fixed Income Notes, M+ Fixed Income Notes and Australian Property Bonds, other than Financial Products held by or issued to the Mawhinney Entities. 2. Paragraphs 5, 6 and 7 of the orders dated 13 August 2020 be vacated. 3. The interlocutory application filed by the Second Defendant on 10 September 2020 be dismissed. 4. The Second Defendant pay the Plaintiff's costs of the application for the injunction. See Australian Securities and Investments Commission v M101 Nominees Pty Ltd (No 3) [2021] FCA 354. 6 The order did not carry, in accord with r 41.06 of the Federal Court Rules 2011 (Cth), "an endorsement that [Mr Mawhinney would] be liable to imprisonment, sequestration of property or punishment for contempt if … [he] disobey[ed] the order". 7 On 21 January 2022, in proceeding VID228/2020 Anderson J imposed the following pecuniary penalties, giving effect to his Honour's reasons delivered on 22 December 2021 in Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd [2021] FCA 1630: 1. The First Defendant pay to the Commonwealth of Australia a pecuniary penalty of $10,000,000 in respect of the First Defendant's conduct declared to be contraventions of s 12DB of the Australian Securities and Investments Commission Act 2001 (ASIC Act). 2. The Second Defendant pay to the Commonwealth of Australia a pecuniary penalty of $8,000,000 in respect of the Second Defendant's conduct declared to be contraventions of s 12DB of the ASIC Act. 3. The Third Defendant pay to the Commonwealth of Australia a pecuniary penalty of $8,000,000 in respect of the Third Defendant's conduct declared to be contraventions of s 12DB of the ASIC Act, such penalty not to be enforced pursuant to s 553B(1) of the Corporations Act 2001 (Corporations Act). 4. The Fourth Defendant pay to the Commonwealth of Australia a pecuniary penalty of $4,000,000 in respect of the Fourth Defendant's conduct declared to be contraventions of section 12DB of the ASIC Act. 8 By notice of appeal filed on 9 June 2021, Mr Mawhinney appealed from the whole of the judgment and paragraphs 1 and 4 of the 19 April 2021 orders in proceeding VID524/2020. That appeal is proceeding VID244/2021. 9 By notice of appeal filed on 24 January 2022, three of the four defendants to that proceeding (all companies directed by Mr Mawhinney) appealed from the whole of the judgments and orders of 23 March 2021 and 21 January 2022 in proceeding VID228/2020. That appeal is proceeding VID36/2022. 10 The appeals will be heard together, and are to be listed for hearing before a Full Court in August 2022 on an estimate of five days.

Applications by ASIC 11 In proceeding VID524/2020, by an interlocutory process filed on 15 November 2021, ASIC now seeks the following orders: 1. To the extent necessary: (a) An order dispensing, nunc pro tunc, with the requirement in r 41.06 of the Rules that the orders made on 19 April 2021 include the endorsement of the type referred to in r 41.06 of the Rules. (b) In the alternative, an order that the orders made on 19 April 2021 be varied to include the endorsement of the type referred to in r 41.06 of the Rules. 2. A declaration that the Second Defendant (Mawhinney) is guilty of a contempt in respect of his breaches of order 1 of the orders made [by Anderson J] on 19 April 2021 (19 April Orders). 3. An order punishing the Mawhinney [sic] for contempt in respect of his breaches of order 1 of the 19 April Orders in terms which the Court considers appropriate. 4. Interlocutory and final injunctions preventing Mawhinney, from soliciting or receiving funds in connection with, or advertising, promoting or marketing, the facilities offered by Eleuthera Group Pty Ltd (ACN 168 390 029) and Eleuthera Group Ltd (UK company number 12272472) or any substantially similar finance product. 12 By an originating process filed on 15 November 2021, ASIC commenced new proceeding VID666/2021, seeking the following relief under ss 911A, 1041H, 1101B, 1317E and 1324 of the Corporations Act, ss 12DA, 12DB, 12GBA, 12GBB and 12GD of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s 21 of the Federal Court of Australia Act 1976 (Cth) and the implied power of the court, against the defendants (Mr Mawhinney, Eleuthera Group Pty Ltd (Eleuthera Australia) and Eleuthera Group Ltd (Eleuthera UK)): 1. Declarations that: (a) since June 2021, alternatively between June and August 2021 the First, Second and Third Defendants: (i) falsely represented that they were entitled to advertise, promote or market and/or solicit funds in connection with, fundraising facilities; further or alternatively were not prohibited from doing so; further or alternatively (ii) failed to disclose that the advertisement, promotion and marketing of, and soliciting of funds in connection with, the fundraising facilities is or may be prohibited by the injunction ordered by the Court in proceeding VID 524 / 2020; (b) by their conduct the First, Second and Third Defendants: (i) in trade or commerce, in connection with the supply or possibly supply of financial services (or the promotion of such supply or possible supply), made false or misleading representations that the services had approval, in contravention of s 12DB(1)(e) of the ASIC Act; (ii) engaged in conduct in trade or commerce, in relation to financial services, or in relation to a financial product or a financial service, that was misleading or deceptive or likely to mislead or deceive, in contravention of s 12DA of the ASIC Act and/or s 1041H of the Corporations Act; (c) by its conduct the Second Defendant, carried on a financial services business in this jurisdiction, when it did not hold an Australian financial services licence, in contravention of s 911A of the Corporations Act. 2. Interim, interlocutory and final injunctions preventing the: (a) First, Second and Third Defendants from soliciting or receiving funds in connection with, and/or advertising, promoting or marketing, the fundraising facilities or any substantially similar financial product or financial service; and (b) Second Defendant from carrying on a financial services business in this jurisdiction. 3. An order that the First Defendant, Second Defendant and/or Third Defendant pay a pecuniary penalty, for their contraventions of s 12DB of the ASIC Act, in an amount to be fixed by the Court. 4. Costs. 5. Such further or other orders as the Court thinks fit. 13 By an interlocutory process filed on 15 November 2021, ASIC seeks the interlocutory relief in [2] of its originating process above. 14 The defendants oppose the granting of the relief sought by ASIC.

Applications by Mr Mawhinney and his companies 15 In proceeding VID524/2020, the second defendant, Mr Mawhinney, by an interlocutory application filed on 9 February 2022, seeks an order that ASIC's interlocutory process dated 15 November 2021 (which includes an application for a declaration that he be found guilty of contempt) be stayed until proceedings VID244/2021 and VID36/2022 (that is, the appeals against the orders of Anderson J) have been determined. 16 In proceeding VID666/2021, by an amended interlocutory application filed on 15 February 2022, Mr Mawhinney and Eleuthera Australia (with Eleuthera UK having been dissolved) seek the following relief: Declarations sought 1. This proceeding is stayed under s 1317N of the Corporations Act 2001 until the plaintiff's interlocutory process dated 15 November 2021 in proceeding VID 524/2021 (the Contempt Application) has been determined. 2. Further or alternatively, this proceeding is stayed under s 12GBCH of the Australian Securities and Investments Commission Act 2001 until the Contempt Application has been determined. Interlocutory orders sought 3. In the alternative to 1 and 2, this proceeding shall be stayed until the Contempt Application has been determined. 4. In the alternative to 1-3, this proceeding shall be stayed until proceedings VID 244/2021 and VID 36/2022 have been determined. 17 The defendants rely on an affidavit of Mr Joshua Flory of Roberts Gray Lawyers, the solicitors for the defendants, affirmed on 8 February 2022. That affidavit simply annexes the orders and reasons of Anderson J dated 23 March 2021, 19 April 2021, 22 December 2021, and 21 January 2022 referred to above, and the notices of appeal in proceedings VID244/2021 and VID36/2022.

ASIC'S APPLICATION FOR AN INTERLOCUTORY INJUNCTION 18 ASIC relies on the affidavits of Ms Rebecca Kougellis dated 12 November 2021 and 2 February 2022, Ms Kougellis's correcting affidavit of 15 February 2022, and the affidavits of seven investors, filed in each of proceeding VID524/2020 and VID666/2021. 19 ASIC relies on the court's power to grant the injunction in ss 1101B(5) and 1324(4) of the Corporations Act in proceeding VID666/2021 and on the court's implied power to regulate its own processes in the contempt application in proceeding VID524/2020.

Serious question to be tried 20 ASIC submitted that there is at least a serious question to be tried as to whether: (a) the facilities offered by or on behalf of the defendants were "financial products" as defined, because each facility was: (i) a "debenture" within the meaning of s 9 of the Corporations Act, and therefore a "security" within the meaning of s 761A, and a "financial product mentioned in s 764A(1)(a)" (thus falling outside the requirement for a credit facility in reg 7.1.06(1)(a)(v) of the Corporations Regulations 2001 (Cth)); and/or (ii) a facility through which a person makes a financial investment, and hence a financial product mentioned in s 763A(1)(a) of the Corporations Act (thus falling outside the requirement for a credit facility in reg 7.1.06(1)(a)(iv) of the Corporations Regulations 2001 (Cth)); (b) by the emails sent, and the website maintained, in relation to the financial products, the defendants - comprising Mr Mawhinney and his companies: (i) advertised, promoted or marketed and/or solicited funds in connection with financial products, by offering the opportunity to invest or participate in them, thereby breaching the 19 April 2021 orders; and/or (ii) made representations expressly and/or impliedly that the facilities were compliant with the April 2021 orders (and were "credit facilities" and therefore not precluded by the orders), which were false or misleading because the defendants were restrained by the orders from advertising, promoting or marketing and/or soliciting funds in connection with financial products, thereby contravening ss 12DA and 12DB of the ASIC Act and s 1041H of the Corporations Act. 21 ASIC submitted that there is also a serious question to be tried as to whether Eleuthera Australia was carrying on a financial services business, in contravention of s 911A, in raising funds for the investment of moneys paid and the return of the investment (by way of repayment of principal plus interest) to the investors in the future. 22 ASIC did not press its interlocutory application against Eleuthera UK (the third defendant and a UK company), because it has been dissolved. 23 Mr Mawhinney and Eleuthera Australia made extensive submissions in writing, seeking to contest the proposition that there is a serious question to be tried. Oral submissions, however, largely at my urging, proceeded on the basis that there is such a question, which there self-evidently is.

The balance of convenience 24 The real question here is where does the balance of convenience lie, and whether I should exercise the undoubted discretion to grant relief, or not. (As to the discretionary nature of the power to grant interlocutory injunctions, see by way of example only Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at 60 [1], 67 [18] (Gleeson CJ and Crennan J).) 25 In my view, this is not an appropriate case to grant the interlocutory relief sought by ASIC. 26 Firstly, the public interest is already significantly protected by the restraining orders made by Anderson J (see [5] above). 27 Second, although ASIC submitted that "in the absence of injunctions there is an appreciable risk that the Defendants will continue to promote the facilities and raise funds under them from unwitting investors", there is no, or no sufficient, evidence of any such risk, because there is no evidence (which ASIC did not dispute) that Mr Mawhinney has engaged in any of the conduct complained of since 11 August 2021. Thus, as Mr M Pearce SC (who appeared with Mr AJ Weinstock, Mr A Aleksov and Mr P Donovan for the defendants) submitted, there is insufficient evidence that, if the injunction were refused but ASIC succeeded at trial, any injustice would occur. 28 Third, although ASIC submitted that Mr Mawhinney "did not agree to provide an undertaking not to promote the facilities", the fact is that he did. On 15 October 2021, a month before the interlocutory injunction application was issued, Mr Mawhinney offered to give to ASIC the very undertaking that ASIC asked for, namely that he would "not solicit or receive funds in connection with, or advertise, promote or market the fund raising facilities offered by or on behalf of Eleuthera Group Pty Ltd or Eleuthera Group Ltd described in paragraphs [3] - [8] inclusive of the draft unsigned Concise Statement sent to Roberts Gray Lawyers by [ASIC] on 11 October 2021, or any substantially similar financial product and/or financial service". 29 The relevant correspondence regarding the undertaking was set out in the affidavit of Ms Kougellis dated 2 February 2022, and is as follows. 30 On 11 October 2021, Mr Hugh Copley, Litigation Counsel for ASIC, sent a letter to Mr Rhys Roberts of Roberts Gray Lawyers via email, attaching a draft originating process, interlocutory process and concise statement in VID666/2021 (see [12] and [13] above). Mr Copley's letter relevantly stated: … I refer to the raising of funds (and continuing to seek to raise funds) from the public, via a purported 'credit facility', in circumstances where neither Mr Mawhinney nor the entities associated with him are authorised under the Corporations Act 2001 (Cth) (the Act) to do so and where they have misrepresented that fact to the public. ASIC considers that this conduct: (a) has likely breached the Orders (Mr Mawhinney's alleged contempt); and (b) has likely breached ss 911A and 1041H of the Act and ss 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth) (alleged illegal fundraising). … Unless Mr Mawhinney and those entities listed in the [Originating Process/Interlocutory Process], confirm in writing (via your firm), by 1 pm (AEDT) on 13 October 2021, that they will immediately cease and desist any continuation of the alleged illegal fundraising, I am instructed that ASIC will file and serve the proposed proceeding. 31 Two days later, Mr Roberts sent a letter in response via email. That letter did not refer to any undertaking. The parties exchanged further emails on the same day, including an email from Mr Copley to Roberts Gray Lawyers at 5:43pm stating: "As [ASIC's] last letter (of 11 October) sought to make plain, ASIC considers that these matters are important. They are also urgent, particularly in the absence of any undertakings by your clients to desist from the conduct of which ASIC is concerned". 32 Mr Liang Chen of Roberts Gray Lawyers responded to Mr Copley's email on 15 October as follows (emphasis in original): We refer to ASIC's letter dated 11 October 2021, sent under cover of Ms Kougellis' email at 12:42 pm. Notwithstanding the correspondence in the interim, we have received instructions that James Mawhinney, Eleuthera Group Pty Ltd and Eleuthera Group Ltd are prepared to give the undertaking requested from ASIC in the attached form. We request ASIC's confirmation that ASIC will not file and serve the proposed proceeding attached to your letter of 11 October 2021. 33 The attached undertaking provided as follows: UNDERTAKING BY: James Mawhinney ("First Defendant") Eleuthera Group Pty Ltd (ACN 168 390 029) ("Second Defendant") Eleuthera Group Ltd (UK company number 12272472) ("Third Defendant") 1. The First, Second and Third Defendants undertake that they will not solicit or receive funds in connection with, or advertise, promote or market the fund raising facilities offered by or on behalf of Eleuthera Group Pty Ltd or Eleuthera Group Ltd described in paragraphs [3] - [8] inclusive of the draft unsigned Concise Statement sent to Roberts Gray Lawyers by the Australian Securities and Investments Commission on 11 October 2021, or any substantially similar financial product and/or financial service. 2. The Second Defendant undertakes that it will not carry on a financial services business in Australia. 34 Mr Copley replied to Mr Chen's email later that day, saying that he was awaiting instructions "as to whether ASIC considers the attached form of undertaking to be sufficient in all the circumstances". 35 On 28 October 2021, Mr Copley sent a letter to Mr Roberts via email, relevantly as follows (emphasis in original): I am instructed that ASIC considers the 15 October undertaking does not adequately address the concerns enunciated in ASIC's letter dated 11 October 2021. As such, the 15 October undertaking is rejected. In the event your clients remain willing to offer an undertaking, I am instructed that ASIC is prepared to accept an undertaking in the form attached to this letter (revised undertaking). You will see that the revised undertaking will need to be provided (by consent of the parties) - to the Court - in proceeding VID524/2020: ASIC v M101 Nominees & Ors (VID524). … Finally, I am instructed that ASIC requires your clients to confirm their agreement to the revised undertaking, before 5pm (AEDT) on 5 November 2021. If the revised undertaking cannot be agreed by that time. ASIC will proceed to file and serve the proposed proceeding. 36 As foreshadowed in the letter, the revised undertaking took the form of a draft court order in proceeding VID524/2020. It included a penal notice directed to the attention of Mr Mawhinney, Eleuthera Australia and Eleuthera UK, and provided as follows: THE COURT ORDERS BY CONSENT OF THE PLAINTIFF, THE SECOND DEFENDANT AND THE PROPOSED FOURTH AND FIFTH DEFENDANTS THAT: 1. Eleuthera Group Pty Ltd (ACN 168 390 029) and Eleuthera Group Ltd (UK company number 12272472) be joined to this proceeding as the Fourth and Fifth Defendants respectively, and the title to the proceeding be amended accordingly. THE SECOND, FOURTH AND FIFTH DEFENDANTS, BY THEIR SOLICITORS, UNDERTAKE TO THE COURT AND TO THE PLAINTIFF THAT: 2. The Second, Fourth and Fifth Defendants, whether by themselves, their servants, agents, officers, employees and any company of which they are officers or members, will not: (a) solicit funds in connection with; or (b) receive funds in connection with; or (c) advertise, market or promote, the financial products described in: (i) the emails set out in Annexure A; or (ii) the websites with the universal resource locators 'creditopportunity.com.au' and 'providecapital.com.au', maintained by or associated with the Second Defendant, or any substantially similar financial product (as defined in Division 3 of Chapter 7, and s 9, of the Corporations Act) or financial service (as defined in Division 4 of Chapter 7, and s 9, of the Corporations Act). 3. The Fourth Defendant will not carry on a financial services business in Australia (as defined in Division 2 of Chapter 7 of the Corporations Act). 37 Mr Copley and Mr Roberts exchanged further emails about the deadline for a response from Roberts Gray Lawyers. On 8 November, Mr Copley sent an email to Mr Roberts advising that "I am instructed to inform you that unless we receive a response from you before 5pm AEDT on 11 November - confirming that your clients will provide undertakings in the form that has been sought by ASIC - proceedings will be commenced against your clients". 38 On 11 November, Mr Roberts sent a letter to Mr Copley via email, relevantly as follows: Our attempt by letter dated 13 October 2021 to engage ASIC in dialogue over the matters raised in the letter of 11 October and the enclosed draft documents was rebuffed by ASIC's email on the same day as our letter. On 15 October 2021 we wrote to ASIC offering on behalf of our clients a form of undertaking. The undertaking was a written commitment of the kind sought in your letter of 11 October 2021. The wording of the undertaking was taken almost verbatim from the form of order contained in the draft Interlocutory Process enclosed with ASIC's letter of 11 October 2021. We therefore anticipated that it would be acceptable to ASIC. We were therefore astonished to receive ASIC's letter of 28 October 2021 rejecting the undertaking we had offered and seeking something substantially different from our clients. ASIC did not in that letter propose a new proceeding as it had done in the letter of 11 October 2021. ASIC proposed no application to deal with the defendants in VID 524/2020 for contempt as it has previously threatened. Instead ASIC proposed, with no process or evidence, to re-open VID 524/2020 to join Eleuthera Group Pty Ltd and Eleuthera Group Ltd as defendants and somehow for the defendants as part of a consent order to give the Court an undertaking substantially different to the form of order ASIC foreshadowed by the draft Interlocutory Process enclosed with the letter of 11 October 2021. We fail to see how the Court could make the order ASIC proposed by letter of 28 October 2021 or accept the undertaking ASIC proposed in the absence of any process or evidence. ASIC has not foreshadowed any such process or evidence. To add to the confusion, by emails of 8 and 9 November 2021 ASIC has threatened that, unless our clients consent to the proposal set out in the letter of 28 October 2021, ASIC will issue the proceeding foreshadowed in the 11 October 2021 letter. With respect, this makes no sense at all. The things required of our clients in the letter of 28 October 2021 cannot be ordered against them in a proceeding of the kind foreshadowed by ASIC in the letter of 11 October 2021. Our clients have offered an undertaking to the same effect as what could be ordered against them in the proceeding foreshadowed by ASIC's letter of 11 October 2021. If ASIC issues that proceeding we will repeat our offer of the undertaking and seek dismissal of the proceeding with costs. If ASIC intends to issue a different proceeding to the one foreshadowed on 11 October 2021, or propose some process in proceeding VID 524/2020, please give us the details and we will reconsider how our clients might be able to respond. We cannot sensibly offer to do anything more than that. 39 ASIC commenced proceeding VID666/2021 four days later, on 15 November 2021. 40 Mr Roberts sent an email to Mr Copley the following day, as follows: We refer to previous correspondence and to your letter of 15 November 2021, enclosing materials seeking to deal with our client, James Mawhinney, for alleged contempt of court for contravening orders made by the Federal Court in proceeding no VID524 of 2020. Your letter of 15 November 2021 seeks an early indication of Mr Mawhinney's attitude to the relief sought in the contempt application. It would assist Mr Mawhinney to know whether ASIC is willing to resolve the contempt application on the basis that Mr Mawhinney consents to the relief sought by ASIC in your letter of 28 October 2021. 41 Mr Copley responded later that day as follows: The undertaking attached to my 28 October letter concerned the matters the subject of the New Proceeding; not the Contempt Application. That undertaking was not acceptable to Mr Mawhinney and the Eleuthera entities, which the contents of your letter of 11 November make clear. As such (and as foreshadowed), ASIC has now commenced the New Proceeding - a principal aim of which is stop Mr Mawhinney and the Eleuthera entities from further illegal fundraising. The Contempt Proceeding deals with Mr Mawhinney's historical breaches of the final orders made in VID524/2020. Whilst those breaches inform the need for the injunctive relief the subject of the New Proceeding, they also - on their own - establish grounds (on ASIC's case) for Mr Mawhinney to be punished by the Court. As ASIC has now commenced the New Proceeding and the Contempt Application, any agreement as to the ultimate disposal of these matters - which might be reached by the parties - will now need to be sanctioned by the Court. 42 In my view, the fact that Mr Mawhinney proffered to ASIC the very undertaking that it sought (only to see ASIC change its mind and seek wider undertakings and to add additional defendants) is, in the circumstances of this case, an additional reason why in the exercise of my discretion I should decline to grant the interlocutory relief.

Applicable principles 43 The court has a wide jurisdiction to stay proceedings in the interests of justice. The power to do so is an incident of the court's general power to control its own proceedings (see s 23 of the Federal Court Act). 44 Justice Moshinsky considered the relevant and well established principles in Impiombato v BHP Group Ltd [2020] FCA 350; (2020) 143 ACSR 301, 325-327 [122]-[131]. Relevantly, and in summary, they are: (1) Courts have the power to control their proceedings and to order a stay in an appropriate case; it will be appropriate to do so where the interests of justice require such an order. (2) A plaintiff is prima facie entitled to have their civil action tried in the ordinary course and a stay therefore requires justification on proper grounds (with the applicant for a stay bearing the burden of demonstrating such grounds). (3) A court will not grant a stay of a civil proceeding merely because related charges have been brought against an accused and criminal proceedings are pending; a stay of the civil proceeding may be warranted if it is apparent that the accused is at risk of real prejudice in the conduct of their defence in the criminal trial. (4) Such prejudice includes the accused's right to silence or privilege against self-incrimination. (5) It may not be necessary for the applicant for the stay to state the specific matters of prejudice before a stay can be contemplated. To require them to do so would be to make the risk of prejudice a reality by requiring them to reveal information about their defence, which is the very situation which an order for a stay seeks to avoid. (6) Relevant prejudice to a party in the civil proceeding may arise from the existence of the criminal proceeding even in circumstances where there is not a strict identity between the applicant for the stay of the civil proceeding and the criminal accused. There may, for example, be relevant prejudice where the criminal accused, although not a party to the civil proceeding, would be a lay witness in that proceeding. In such circumstances, the criminal accused's invocation of the privilege against self-incrimination and the right to silence may deprive a party to the civil proceeding of assistance or evidence that is critical or very important to its claim or defence. (7) The risk of prejudice identified by an applicant for a stay must be weighed against the prejudice that a stay of the civil proceeding would occasion. (8) The principles relevant to the exercise of the discretion to grant a stay are not different in the case of a proceeding brought by a regulator, from those that apply in the case of a proceeding brought by a private plaintiff. (9) Each case must be judged on its own merits; the matters that might individually, or in combination, be relevant to the exercise of the discretion are not rigid or closed; the factors identified in the authorities are not a prescriptive or an exhaustive statement of all of the considerations, or the weight to be attached to them. (10) In an appropriate case, the proceeding may be allowed to proceed to a certain stage, for example, setting down for trial, and then stayed.

Staying the contempt application - Mr Mawhinney's submissions 45 Mr Mawhinney accepts, as he is bound to accept, that, as his senior counsel put it, "the orders are the orders, and even if the orders are set aside on appeal if they were breached while they were in existence that's a breach of the orders. There's no argument about that". 46 That is so because as the plurality made clear in State of New South Wales v Kable (2013) 252 CLR 118 (Kable) at 133 [32]: It is now firmly established [citing Cameron v Cole (1944) 68 CLR 571 at 590, 598, 606-607; DMW v CGW (1982) 151 CLR 491 at 501-505, 507; R v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 193-194, 222-223; Ex parte Marsh (1985) 157 CLR 351 at 374-375; Re Macks (2000) 204 CLR 158 at 177-178 [19]-[23], 183-187 [46]-[57], 235-237 [214]-[220], 247-249 [253]-[257], 278-279 [342]-[344]] by the decisions of this Court that the orders of a federal court which is established as a superior court of record are valid until set aside, even if the orders are made in excess of jurisdiction (whether on constitutional grounds or for reasons of some statutory limitation on jurisdiction). It was not submitted that any of these decisions should be reopened and there would be powerful reasons not to disturb such a long-established stream of authority … 47 As the plurality went on to explain, decisions made in the exercise of judicial power are given effect despite the particular decision later being set aside or reversed, because the orders of a superior court of record are treated as valid until set aside (Kable at 135 [39]): Were this not so the exercise of judicial power could yield no adjudication of rights and liabilities to which immediate effect could be given. An order made by a superior court of record would have no more than provisional effect until either the time for appeal or review had elapsed or final appeal or review had occurred. Both the individuals affected by the order, and in this case the Executive, would be required to decide whether to obey the order made by a court which required steps to be taken to the detriment of another. The individuals affected by the order, and here the Executive, would have to choose whether to disobey the order (and run the risk of contempt of court or some other coercive process) or incur tortious liability to the person whose rights and liabilities are affected by the order. 48 Senior counsel's submission in respect of a stay of the contempt application was essentially two-fold. 49 Firstly, he submitted that: The issue is about penalty, your Honour. As things stand at the moment, three judgments below by Anderson J make numerous finding of contraventions of the Corporations Legislation, impose banning orders on Mr Mawhinney of 20 years, impose $30 million in fines on companies associated with Mr Mawhinney. Inevitably, if your Honour were to deal with penalty those are matters that ASIC would rely on as circumstances of aggravation. Of course, if those matters were all set aside on appeal Mr Mawhinney and potentially also the company will have been penalised on a wrong basis. 50 Second, he submitted that it would be oppressive to bifurcate the liability and any penalty phase of the contempt application as follows: We say that would be unfair to Mr Mawhinney and the company for these reasons. It could be a substantial delay. The appeals, we know, are in late-August. Realistically, it's very unlikely there will be a judgment on the appeals until sometime next year and realistically possibly late into next year. So we're probably looking at second half of next year before we get the appeals' decision. There will be a lengthy period. Assuming that your Honour makes a finding of a breach of the orders, the respondents will then be in this kind of a limbo with that finding against them but no penalty having been assessed. That would, in any circumstance, in my submission, be oppressive but particularly so in the present case where there are powerful factors in mitigation that they would want to put against, in the first instance, a finding of contempt because it is open to a court where contempt is said to constitute the breach of a court order to find that the order has been breached but to find that the breach, in any event, was frivolous and technical and not to make a finding of contempt, and over and above that even if a finding of contempt is made, if it's a frivolous or technical breach or there are other powerful factors in mitigation such as reliance on legal advice, the court can decline to impose a penalty. Now, all this material in mitigation that the defendants, the respondents to the contempt application, would want to bring are all held in abeyance. But the finding against them stands a breach of the court order, and that might all be held in abeyance for 12 months or more. And, in my submission, that would be oppressive, bifurcating in that circumstance. We accept that there's a two-stage procedure, as there always is, for both the contempt and the civil penalty proceeding. But to bifurcate and hold off assessment of matters going to penalty and whether, indeed, a finding of contempt should even be made would, in my submission, be unfair and oppressive, and it would be wrong to bifurcate the proceeding to that extent. But as things stand that looks like what would happen. Now, that's the basis on which we say both matters should be - should go off. … You would either be sentencing or penalising the respondents as clean skins if the appeals succeed, or with a list of priors as long as your arm. And it's a big difference. And there are no other prior priors, as it were. So two completely different universes - pre and post appeal.

Staying the injunction proceeding - Mr Mawhinney's submissions 51 Senior counsel's submissions in respect of a stay of ASIC's injunction proceeding were as follows. 52 First, it was submitted that the proceeding is stayed, by operation of either s 1317N of the Corporations Act or s 12GBCH of the ASIC Act. 53 Section 1317N of the Corporations Act provides: 1317N Criminal proceedings during civil proceedings (1) Proceedings for a declaration of contravention, a pecuniary penalty order or a relinquishment order against a person are stayed if: (a) criminal proceedings are started or have already been started against the person for an offence; and (b) the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention. (2) The proceedings for the declaration or order … may be resumed if the person is not convicted of the offence. … 54 Section 12GBCH of the ASIC Act provides: 12GBCH Criminal proceedings during civil proceedings (1) Proceedings for a declaration of contravention, a pecuniary penalty order or a relinquishment order against a person for a contravention of a civil penalty provision are stayed if: (a) criminal proceedings are started or have already been started against the person for an offence; and (b) the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention. (2) The proceedings for the declaration or order … may be resumed if the person is not convicted of the offence. … 55 The submission that either of those provisions acts automatically to stay the injunction application cannot be accepted. As ASIC submitted, s 1317N of the Corporations Act and s 12GBCH of the ASIC Act do not apply. The contempt application in proceeding VID524/2020 is not a "criminal proceeding". It is an interlocutory application in a civil proceeding and does not attract the criminal jurisdiction of the court to which the application is made. As Nettle J said in Construction, Forestry, Mining and Energy Union v Boral Resources (Vic) Pty Ltd (2015) 256 CLR 375 at 395 [65], "[a] criminal contempt is a common law offence, albeit not part of the ordinary common law. But even a proceeding for criminal contempt is not a criminal proceeding". 56 Senior counsel for the defendants put the case for a stay of the injunction application on a discretionary basis in these terms: There will be a question about the concise statement - a response to the concise statement from the corporate defendant. But we run into issues now around the privilege, and this is the discretionary basis for staying that proceeding, your Honour, because for the corporate respondent or defendant to that proceeding properly to file any kind of process and to prepare evidence that will require the assistance of Mr Mawhinney, its sole director and the only natural person identified in ASICs evidence as having acted on behalf of the corporate defendant. And yet for Mr Mawhinney to do that would put at risk his privilege against self-incrimination and his privilege against exposure to penalty … [T]hat is a powerful discretionary reason why a civil proceeding should be stayed … Otherwise we have the difficulty of preparing a defence on behalf of the corporate defendant when the one person who can give instructions and help prepare evidence will want to rely on his privileges. So we run into that difficulty. 57 In that regard, senior counsel relied on the decision of Moshinsky J in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2019] FCA 964; (2019) 138 ACSR 42, where his Honour stayed a civil proceeding until the final determination of criminal proceedings related to the same subject matter or further order, in the exercise of his discretion, including because there was a real risk of prejudice to the bank because it would have been required to conduct its defence of the civil proceeding without the assistance of key individuals.

Staying the contempt application - ASIC's submissions 58 As to the stay of the contempt application, ASIC submitted that: The Court should not stay the contempt application in VID 524/2020 pending determination of the appeals. [Mr] Mawhinney has identified no principled basis on which it can be said that such a stay would be in the interests of justice. Instead, [he] points to a series of interrelated but speculative propositions about what might happen in the appeals. That is that, the appeal might be allowed, and if the appeals are allowed, [he] might not be punished for contempt, and in those circumstances the Court may conclude (in the exercise of its discretion) that any declaration would be a bare declaration. Those propositions layer hypothetical upon hypothetical, and in any event identify no particular prejudice that [Mr] Mawhinney would suffer that might justify a stay. (Emphasis in original)

Staying the injunction application - ASIC's submissions 59 As to the stay of the injunction application, ASIC submitted that the proceeding should not be stayed until the determination of the contempt application for these reasons: The Defendants bear the onus of persuading the Court that a stay of this proceeding would be just and convenient, and that there is a risk of prejudice in the conduct of their defence of the contempt application. The only basis that the Defendants identify to support a stay is - hearsay evidence (through the solicitor's affidavit) - that [Mr] Mawhinney's assistance in 'preparing [the] defences' for the Defendants in this proceeding (VID 666/2021) will be 'very important', and that such assistance might abrogate his privilege against self-exposure to a penalty. That weak assertion does not justify the 'very grave' step of upsetting ASIC's prima facie entitlement as plaintiff to have its civil action tried in the ordinary course, particularly where the action is brought in the public interest for the purpose of consumer protection. Moreover, at the heart of this proceeding lies essentially a legal question, whether the facilities offered by the Defendants are financial products. One would be sceptical about the assertion that [Mr] Mawhinney's assistance will be 'very important', particularly as [he] has sought repeatedly to justify the offer of the facilities on the basis of the legal advice which he received about their propriety. In any event, should [Mr] Mawhinney claim the privilege against self-exposure to penalty, he would not be required to take steps in either the civil penalty action (proceeding VID 666/2021) or in the contempt application (in proceeding VID 524/2020), to the extent such step would abrogate [his] privilege against self-exposure to a penalty, until such time as ASIC has closed its case. Accordingly, there will be no prejudice to [him] if proceeding VID 666/2021 continues. On the contrary, a stay of proceeding VID 666/2021 would be inefficient, and contrary to the overarching purpose in s 37M of the Federal Court of Australia Act 1976, because it would require essentially the same matters to be litigated twice - first in the contempt application, and then in the civil penalty proceeding. They should be tried together, given the overlap in legal and factual issues as to whether the facilities offered by the Defendants are financial products. Two of those Defendants (the companies) are not parties to the contempt application. It is unlikely that the two trials could be conducted before the same judge (particularly if a finding of contempt is made as a result of the first trial); and if the next trial is heard by a different judge then there is a risk of inconsistent findings. Finally, a stay would cause prejudice to ASIC and its capacity to advance the purposes of the Corporations legislation, and to the public interest. (Footnotes omitted) 60 ASIC also submitted that no basis had been established for staying the injunction proceeding until the determination of the appeals in proceedings VID244/2021 and VID36/2022.

ASIC's reply submissions 61 In his oral submissions in reply, senior counsel for ASIC (Dr O Bigos QC, who appeared with Mr TJD Chalke) submitted that the liability and penalty stages of both the injunction application and the contempt application should be split. He submitted as follows: Now, what the defendants are really seeking, your Honour, is a stay of the proceedings until at least next year. They expect that the Full Court give judgment not before next year. So they want a stay of many months - nine months at least, maybe more - without giving an undertaking not to engage in the conduct that we complain about. And that length of the stay is a more powerful - the length of the stay sought is a more powerful factor in favour of the grant of an injunction. What we can't see, for our part, is why a trial on liability can't be held soon - so accepting that there will be a split between liability and relief. HIS HONOUR: You mean, in both … DR BIGOS: In both matters, yes. Why can't the issue of financial product - any other issues that relate to liability - be held soon, and then we can put off any issues relating to penalty and/or punishment for contempt. The court has within its powers ways of managing these matters - case managing. As we understand our friend's complaint, in relation to 666 it's really the penalty aspect that our friends say might be impacted by what the Full Court says. … Whatever happens with penalty and punishment for contempt, that's a separate matter. But let's get on with the liability phase is our point. 62 It was also submitted on behalf of ASIC that I should consider hearing the liability phase of the contempt application and then delay making any finding about it. The submission was made in the course of this exchange with counsel: HIS HONOUR: And you say on both - well, what do you say about the contempt point that Mr Pearce makes - that it's a serious matter to be found guilty of contempt, and to have it hanging over your head waiting for a Full Court judgment that might … DR BIGOS: So two points. One is we don't understand how the Full Court - whatever the Full Court did say, how does that impact on the decision as to whether Mr Mawhinney has breached or hasn't breached the orders? It's … HIS HONOUR: Well, I think Mr Pearce conceded that point. He's not saying that these orders can be flouted willy-nilly; they have to be obeyed whilst they're extant. He says the unfairness - the oppressiveness - is if you make that finding and then Mr Mawhinney has the finding dangling over his head until the Full Court decides the appeal. DR BIGOS: So we don't know when that finding will be made. But one piece of armour in your Honour's possession is that your Honour can delay the making of a finding about contempt. So your Honour can hear the liability phase and delay making findings. Courts can do - there are flexible ways in which courts can manage these things. And if it seems that your Honour is about to hand down judgment but the Full Court hasn't yet handed down judgment, your Honour can delay it until the Full Court makes its decision. There are flexible ways in which the court can manage these things. It's not a reason not to get on with it.

Should a stay or stays be granted? 63 In my view, the interests of justice require that both the contempt application and the injunction application be stayed pending the hearing and determination of the appeals in proceedings VID244/2021 and VID36/2022, essentially for the reasons advanced by senior counsel for the defendants. 64 As to staying the contempt application, it seems to me that it would be unfair and oppressive to Mr Mawhinney potentially to face a situation where he may be found liable for contempt, but then have to wait a considerable period of time before any penalty hearing could occur. And if any appeals were partially or completely successful, the nature and extent of possible contempt penalties may be different as a consequence. 65 I am not attracted to Dr Bigos's submission that I could instead hear the contempt application and then defer deciding it until the appeals are heard and determined. That seems to me likely to produce inefficiencies, to say the least. 66 As to the injunction application, it was issued on the same day as the contempt application, for what is substantially the same conduct. That conduct is alleged, in both the contempt application and the injunction application, to have breached the 19 April 2021 orders in proceeding VID524/2020. So there is a large degree of overlap. Further, there is no particular urgency about when the injunction application is to be heard, because as I said earlier in these reasons, the alleged contraventions date back to August 2021, and there is no suggestion in the evidence of any imminent danger of any repetition of the allegedly wrongful conduct. 67 Further, I accept Mr Pearce's submission that Mr Mawhinney is likely to put at risk claims to privilege against self-incrimination and privilege against exposure to penalty if, as the sole director of Eleuthera Australia, he were to provide instructions for the filing of a defence to the concise statement, or otherwise defend the proceeding. The risk of prejudice to him where there is significant degree of overlap between the relevant proceedings if a stay is not granted seems to me to be plain enough. 68 Further, ASIC was unable to point to any real or significant prejudice were the stays to be granted, other than the delay.

DISPENSING WITH THE REQUIREMENT IN RULE 41.06 69 Because the orders of 19 April 2021 (see [5]-[6] above) did not carry, in accordance with r 41.06 of the Federal Court Rules, "an endorsement that [Mr Mawhinney would] be liable to imprisonment, sequestration of property or punishment for contempt if … [he] disobey[ed] the order", ASIC sought: (a) An order dispensing, nunc pro tunc, with the requirement in r 41.06 of the Rules that the orders made on 19 April 2021 include the endorsement of the type referred to in r 41.06 of the Rules. (b) In the alternative, an order that the orders made on 19 April 2021 be varied to include the endorsement of the type referred to in r 41.06 of the Rules. 70 At the hearing, the parties agreed that the issue could and should be dealt with at the main hearing, because nothing turns on when the order is made, if it is made.

DISPOSITION 71 I will accordingly make orders staying the contempt application and the injunction application until the hearing and determination of the appeals in proceedings VID244/2021 and VID36/2022, or until further order. I will also grant liberty to apply on three days' notice. 72 As to the costs of the applications, I am inclined to reserve the question, as is usually the case in applications of this type. And see r 40.04 of the Federal Court Rules. However, I will provide a brief period of time for the parties to indicate if they wish to be heard on the question, in which case directions will be made for the filing of short written submissions and the matter can be dealt with on the papers. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.

Corporations Act 2001(Cth)ss 1101B, 1101B(5), 1317N, 1324, 1324(4)

Federal Court Rules 2011(Cth)rr 40.04, 41.06

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